Hours away now from the Microsoft imposed deadline for Yahoo to negotiate or die. Too dramatic? Not really when you're talking about $40 billion hanging in the balance as well as the future dominance of all things digital.
Too dramatic still? Not so, when you think about Steve Ballmer's decade-long, iron-fisted rule of the world's largest software maker whose entire legacy may hinge on whether this deal goes through; or whether Microsoft will be rebuffed by a cadre of upstarts at a company with a silly name.
I know, I know, not so silly when you consider the wealth and influence Yahoo has created since it was founded in a Stanford dorm room lo those many years ago. But it's Yahoo's legacy too that's at risk if the company shuns this deal and decides to spend immeasurable resources and energy -- in what most believe will be a defense in vain -- trying to fend off the bad boys from Redmond. Legacy aside, if Microsoft goes nuclear, and walks from the deal all together, Yahoo's team runs the risk of a tsunami of fiduciary responsibility lawsuits.
Yahoo's got some problems. Some say the company's status as "victim" was solidified when Microsoft slapped that three-week deadline on Yahoo, well, three weeks ago tomorrow. An arbitrary deadline that injected a healthy dose of drama where it wasn't necessarily needed. But it wasn't arbitrary. Yahoo isn't negotiating. And Microsoft needed to do something to get Yahoo's attention. Chris Liddell, Microsoft's CFO, says the company has "unrealistic expectations" of its own value, leading analysts to believe Yahoo is pushing for $40 a share or higher, when Microsoft, already offering a 62 percent premium, is standing pat at $31.
Yahoo could certainly make a case for a higher value if it came up with better earnings, and far better guidance. But it didn't. Yahoo could make the case for a sweeter deal if there were other suitors lined up with counters. But News Corp. is in Microsoft's c the AOL/Time-Warner alternative -- if there really is one -- is bordering on financial laughability when compared to the Microsoft deal already on the table; and Yahoo's bold attempt at a new ad-sharing relationship with Google -- brief that it was -- was enough to raise the ire of US Justice Department antitrust investigators, if you believe Reuters.
Microsoft isn't in a much better position: the company's online unit enjoyed 40 percent year over year growth to well over $800 million, but still managed to post more than $220 million in losses. It's not as if Microsoft is just now trying to stake a claim online; it's been trying for 10 years and that kind of financial performance speaks volumes about the company's inability to come up with a winning formula. I'm not sure Yahoo is the magic bullet Microsoft needs, but Microsoft -- like Yahoo -- is running out of options.
For Yahoo, the clock is ticking. Time's up. Checkmate. Call it what you will, but the facts are these: Yahoo can delay, delay, delay and waste a lot of time and money on a protracted proxy war, and while Microsoft will come out on top, the collateral damage to brand and finances and public relations may not be worth it. Not to mention that as much as they'd want to think Google is standing by on the sidelines, paralyzed by all the drama and simply waiting to see what happens next, that company is continuing to innovate, and continuing to weave itself more intricately into our everyday lives. The more Microsoft and Yahoo distract each other with a proxy battle, the more market share Google stands to gain.
Microsoft does have a couple of last ditch options: Increase the offer (unlikely); walk from the deal; snap up shares of Yahoo on the open market; or maybe a combination of both. Here's a thought: announce you're walking from the deal, watch Yahoo's shares plunge into the low teens, and THEN, snap up shares on the open market and buy the company at half the price you're offering today. Long shot? Maybe. But a possibility nonetheless.
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