Microsoft Withdraws Its Bid For Yahoo!

Elizabeth Nowicki —  3 May 2008

This just in: Microsoft withdrew its most recent bid for Yahoo and announced it will not be making a hostile move for Yahoo. This comes on the heels of the announcement a mere day ago that Yahoo and Microsoft were sitting down to try to hammer out a friendly deal.  Fickle, that Microsoft is!

Allow me to answer questions folks might ask in the aftermath:

1.  Question:  What does this retreat by Microsoft say about the economy and the M&A market?

Answer:  Nothing.  Nada.  Microsoft wanted to buy Yahoo for cheap.  Yahoo wanted no part of that.  Over the past 20 months, while Yahoo’s stock has been weak, it has traded on-and-off in the $30-ish range.  Microsoft’s final $33 per share bid was nothing to write home about.  If Microsoft was making a credible bid and they thought Yahoo was a good long-term strategic acquisition, we would have seen bid prices moving up further than they have over the past three months.

2.  Question:  What is going to happen on Monday to Yahoo’s stock price?

Answer:  Yahoo’s stock price is going to get pummeled by arbs exiting their short-term investment.  The drop in Yahoo’s stock price will mean nothing of substance.  I promise.  So, while the media is going to get all excited on Monday about the drop in price, and the 5 p.m. news on Monday is going to talk about Yahoo being the day’s biggest loser, ignore the chatter.  Or buy Yahoo stock while it is cheap.

3.  Question:  Is the Yahoo board going to get sued?  Wasn’t this a good deal for Yahoo and the Yahoo board just gave it away?

Answer:  No and no.  Well, “yes” and no.  Yahoo’s board has already gotten sued both by shareholders who thought the Yahoo board should have taken the Microsoft offer and, oddly, from shareholders who thought Yahoo was favoring Microsoft.  Either way, I think those suits are non-starters.  Again, Microsoft was not offering a huge premium for Yahoo.  If I were on the Yahoo board, I would have said “no,” too.

4.  Question:  Is Microsoft just bluffing?  Will they come back with a better bid?

Answer:  I hope not.  I am not convinced that Microsoft yet has a really solid reason for why they need to buy Yahoo, other than thinking they could get Yahoo for cheap.  Now that Microsoft realizes it cannot buy Yahoo for cheap, I doubt they will be circling back around in the short term.  The fact that Microsoft announced tonight that it did not intend to make a hostile bid speaks further to the dim chances they will circle back around in the short term.

To that end, Microsoft should thank the Yahoo board that the Yahoo board stopped Microsoft from making a purchase that does not make a whole lot of sense.  Am I the only person who remembers the AOL-Time-Warner deal from just under a decade ago that is NOW being unwound?  That deal NEVER made sense, and, LOOK, ten years later, it is being unwound.

Note to Microsoft CEO Steve Ballmer:  Send Yahoo CEO Jerry Yang a nice fruit basket on Monday, to thank him from saving Microsoft from its urge to merge.

3 responses to Microsoft Withdraws Its Bid For Yahoo!



    Why on earth would Yahoo’s stock price 20 months ago be relevant to its value today? The day before the MS offer, when presumably the stock reflected the most up-to-date information, MS’s offer was a 62% (if I remember correctly) premium. Nothing to write home about?

    You don’t think that the threat of regulatory action, the deal not being consummated, value-reducing action by Google, or any number of other things could explain the bid prices over the last three months? You think it can only be that the deal wasn’t really worth it? On what basis?

    Why does Yahoo’s price drop mean nothing of substance? If that’s true, why did it happen? And, I presume, you are borrowing as much money as you can to buy Yahoo stock while it is artificially depressed, right?–knowing what you know and the rest of the market doesn’t.

    Can you tell me what Microsoft data, industry knowledge or other information leads you to the conclusion that there was no “really solid reason” for the deal? I do actually have all of the above, and I disagree. Of course, I think we’ll get along fine without Yahoo!, as well: It’s a market, after all–no reason to think Microsoft was somehow getting all of the available rents (it did offer $45 billion dollars in return for Yahoo!, you’ll recall). But that hardly means the deal was a bad idea–I’d love to know why you think that.

    Howard J. Morales 6 May 2008 at 9:03 am

    “Am I the only person who remembers the AOL-Time-Warner deal”

    Yes, you’re the only one. Congrats.


    Time Warner merged with AOL? Wow, when did that happen? That’s big…………