We’ve been following this Microsoft/Yahoo deal in my classes over the course of this semester. The semester is coming to a close, and after about three months of negotiation, nothing has really been settled. This morning, it was reported that Microsoft’s board met to discuss how to proceed. Many have speculated on what might happen, and things get pretty complex. Marc Andreesen, founder of Mosaic – later Netscape, and principal in Ning.com currently, wrote this blog post detailing some of the options.
They could increase their bid, which at the original deal rates $29.06 per share. But, every dollar increase in price amounts to about a $1.3 billion increase in total cost. They could cancel the offer and back out. I don’t think people thought that this would be likely in the initial stages. But, that appears to be a good strategy at this point. From the NY Times article linked above:
“Analysts maintain that if Microsoft abandons its bid, Yahoo’s share price could be expected to drop substantially. This would not preclude Microsoft from trying to reach a negotiated merger agreement with Yahoo at a later date.”
Then there’s the hostile route. This is where it gets complicated and where Andreesen’s article helps out. There are two hostile options:
Tender offer: take the deal directly to the Yahoo shareholders. The most interesting part of this is the “poison pill” scenario. If Microsoft acquires more than 15% of shares without Yahoo’s board approving, the poison pill automatically issues lots more shares on the market, diluting Microsoft’s position. There are some complicated strategies around this, and the dilution can ultimately be very harmful to the company and the market. There can also be litigation.
Proxy fight: propose to unseat Yahoo’s board and replace with one more friendly to the Microsoft scenario.
And, while I don’t think it is beyond Microsoft to exercise any of these hostile options, I have long felt that this would be a poor strategy for them. Do they really want to prove to the world that they are the evil empire that they have been purported to be? Seems like a PR nightmare.
So, I think the most likely scenario is that they will withdraw their offer, wait an appropriate amount of time, let the stock price fall, then come back with a new, lower offer. They don’t have all the time in the world, because they need a social ad/search strategy and partner pronto, but they also would come out looking the best under these conditions. They’d get the company they want, at a lower price, and under more friendly circumstances. Might have been their evil plan all along.
Of course, Yahoo could come back and accept the original deal…realizing that their position is better now than later. There haven’t been any other suitors for Yahoo under the current market conditions. This is a high stakes poker game, and it remains to be seen who blinks first.
Here’s an interesting article from CNET that talks about the success of various takeovers in the past.