Microsoft's deadline ditty late Friday that Yahoo has three weeks left to get a deal done before the deal gets hostile spurred a lengthy, and at some times personal, retort from Yahoo. And the rhetoric is getting interesting, but only to a point.
I say only to a point because Yahoo can hem and haw as much as it wants but it really doesn't have a financial leg to stand on. Just the hint that Microsoft would walk from the deal on Friday torpedoed Yahoo shares by as much as 6 percent. Then there's the threat that Microsoft would lower its bid for Yahoo. And all of that led Yahoo to release a note this morning.
Yahoo's letter, addressed to Ballmer, signed by CEO Jerry Yang and chairman Roy Bostock says the company is not opposed to a deal with Microsoft, just a deal with Microsoft at this price. We've heard that before. What we haven't heard is how Yahoo feels about all this. The letter to Ballmer says, in part, "Your comment that we have refused to enter into negotiations (is) particularly curious given we have already rejected your initial proposal. Moreover, Steve, you personally attended two of these meetings and could have advanced discussions in any way you saw fit." I'm sure that's true. Ballmer probably looked at the 62 percent premium he's offering and thought there's no reason he needs to go even higher.
The Yahoo letter goes on: "We consider your threat to commence an unsolicited offer and proxy contest to be counterproductive and inconsistent with your stated objective of a friendly transaction." I'm sure that's true, too, but the fact is, the companies are nine weeks into the process and still merely exchanging letters rather than constructive dialogue about what it will take to get a deal done.
Microsoft turning up the heat is hardly a surprise. The frustration level in Redmond is only matched by the hubris in Sunnyvale. Yahoo has no other deal on the table, Microsoft is offering a hefty premium, and sticking your head in the sand isn't going to make this hostile bid just go away. Yahoo is playing a dangerous fiduciary game and at this point I can't see how this deal doesn't get done.
Oppenheimer is out with a note this morning suggesting that Microsoft will raise its bid anyway as a way to get this deal done, and quickly, that a sweetened bid is far more preferred than a proxy war that could lead to more Yahoos running for the exit with the resulting brain drain dramatically reducing the brand once Microsoft takes control. I'm not buying it. I think Microsoft stands pat; I think some of the folks who want to leave Yahoo will leave anyway and others will want to stay, assuming that a combined Microsoft/Yahoo becomes a more viable competitor to Google and there's the attraction of being in a better position to take on the nemesis in Mountain View.