Yahoo Vs. Microsoft: The Opinions And Letters Are Flying


Microsoft's hostile play for Yahoo certainly isn't lacking from strong opinions about the deal from experts on both sides of the argument. But the more interesting opinions are coming from the companies themselves.

We've already heard from Microsoft . The company's conference call the day the offer was announced; the following Monday during the company's Strategic Update with investors and media. But since then, we've begun hearing from big shareholders from both companies, and the rhetoric is getting interesting.

First, it was Masayoshi Son, Softbank's CEO, who declared Microsoft's acquisition of Yahoo could actually boost the Yahoo brand. The third largest Japanese mobile phone maker, Softbank owns about 4 percent of Yahoo shares, and 41 percent of Yahoo Japan, so a vote of confidence there carries some weight. Then came word earlier this weekthat Legg Mason , which owns 80 million Yahoo shares, doesn't see a deal happening without a higher offer from Microsoft. Well, duh. Of course Legg Mason wants to see a higher price.

Now, we get the letter from Robert Olstein, who runs Olstein Capital Management which owns about a million Microsoft shares. He calls himself a 40-year Wall Street veteran and sent his note to Microsoft's CFO Chris Liddell and cc'd Steve Ballmer as well. His point is clear: "Under no circumstances should you raise your price. We believe your recent offer for Yahoo is materially above Yahoo's value as an independent company."

He adds that Microsoft must be clear "that you have offered a price that already dilutes Microsoft's shareholders. Your offer of one year ago was supposedly in the 40s. Today you are bidding in the low 30s. I believe you can buy at the present price or cheaper if you step away and play hard ball...In our opinion, it would be detrimental to shareholder value to pay up any further."

But that plain talk isn't persuading Yahoo CEO Jerry Yang who released a letter of his own to shareholders today, which surprisingly re-hashes many of the same points he has made these past couple of weeks. He writes: "We have a huge market opportunity--and are uniquely positioned to capitalize on it...Today, Yahoo is a faster-moving, better organized, more nimble company that it was just a few months ago." He adds that "We are executing our strategy--and making headway." And finally, "This is a great company and we are moving quickly to make it even better."

The problem for Yang and his team is the credibility gap developing between Yahoo and investors. It's tough to believe that everything at the company is suddenly coming together against the backdrop of a $45 billion hostile bid from no less a predator than Microsoft. I'm still hearing anecdotes of internal paralysis, ego games, lack of leadership and frustration. I know Yahoo continues to look for workable alternatives to Microsoft, but as I've written, I think the News Corp. negotiations are a red herring. I think word of a dramatically higher bid from Microsoft is also a long shot at best.

This is all unfolding like a pre-written script. Yahoo had a chance to massage the deal a year ago when it could have offered at least the appearance of market strength. Today, Yahoo's hands are tied, spending their time wringing instead of soothing. Let the letters continue to fly.

Questions? Comments?