The heat is ratcheting up - slowly and steadily - between Microsoft and its $42bn-plus bid target, Yahoo. This week Microsoft, as the FT reported on Monday, faces a critical decision in its three-month pursuit of Yahoo after its latest attempt to bring the embattled internet company to the negotiating table looked to have failed over the weekend.
The pressure on Microsoft to act intensified after Yahoo called the software company’s latest bluff, refusing to be drawn into takeover talks despite expiry of a three-week ultimatum on Saturday.
The continuing stalemate has forced Microsoft to confront the decision on whether to mount an outright hostile bid - something it has been threatening but until now has shied away from for fear of alienating Yahoo employees and angering shareholders who are hoping for a higher price.
Microsoft executives said last week that another option would be to abandon the unsolicited offer, though that is considered highly unlikely. Steve Ballmer, Microsoft’s CEO, had threatened to take Microsoft’s offer direct to Yahoo’s shareholders, and perhaps even to cut the price, if Yahoo didn’t agree to start talks by Saturday. He did not immediately follow through with that threat, leaving more time for Yahoo to start talks before the end of the weekend, notes the FT.
The Wall Street Journal reports on Monday that Ballmer faces opposition to the deal within his own ranks: executives at several Microsoft divisions oppose the bid on the grounds it will “divert needed resources and attention from other challenges the company faces”.
Such sentiment is only heightening as Microsoft heads into its annual budgeting season, but for Ballmer, abandoning the bid following his public saber-rattling “might damage his own credibility as well as Microsoft’s”, adds the Journal.
There are “major cross-currents” on the Microsoft/Yahoo deal after last week’s earnings news from the two companies, noted Paul Kedrosky on Infectious Greed last week.
What we discovered, in effect, was that what we have here are two drunks holding each other up.
Why? Because both companies’ businesses are squishy and doing somewhat worse than expected. Yahoo wasn’t able to pull out a big beat, and Microsoft wasn’t able to deliver the quarter expected, largely because of Windows weakness (which I think is a bigger issue than Windows piracy). Even if this would be a horrifically messy combination to bring off, the two companies need each other.
So, here, according to Kedrosky, are the options:
They have had every opportunity to negotiate a higher price, and Yahoo has demonstrated no willingness to countenance once, which has made Microsoft highly reluctant to float one unilaterally and negotiate with itself.
We can only agree with Kedrosky’s conclusion: “Nasty situation. And, more broadly, a business travesty, with both Yahoo and Microsoft squandering business franchises”.
