What now for Yahoo and Microsoft?

May 6, 2008
by Latitude

So, were there any interesting stories unfolding in the search space over the bank holiday weekend?

You could say that.

Even if you managed to disconnect somewhat over the three day weekend, you probably still caught wind of the news that Microsoft pulled its Yahoo acquisition bid off the table.

It was a working weekend for MS CEO Steve Ballmer, as he sent letters to the Yahoo board and to Microsoft employees on Saturday to explain the decision. Yahoo chairman Roy Bostock then issued his response to Microsoft’s letter. No, it’s not just you: This is starting to feel like an episode of Neighbours. Analysts were less than impressed with Yahoo’s reasoning:

All in all, this strikes me as a fairly unsubtle example of whistling past the graveyard. Come on, the quarter was no hell, and promising a better 2008 is a lovely fantasy, but not exactly grounded in the real world. The rest of the “progress” cited in this note gives the word “vague” a bad name.

This meant, of course, that those of us who are perhaps a bit too wrapped up in this soap spent much of Sunday scouring speculation on how Yahoo would perform when the markets opened yesterday.

Meanwhile, search pundit Danny Sullivan took the view that Microsoft may have messed up in a big way:

[I]f you expect you can do this alone now, why offer up to $50 billion in the first place? Why not have stuck to the long-term plan rather than the drama of the past three months?

At the same time, Bill Miller of Legg Mason, Yahoo’s second-largest institutional shareholder, gave an interview to the New York Times in which he came to a similar conclusion as Sullivan. Miller was sour on the possibility of a merger with AOL, and not much more thrilled about Yahoo going forward in its search partnership with Google. As Miller put it:

If [such a deal] was optimal, they should have done it before Microsoft came after them.

Gordon Crawford of Capital Research, which owns 6 per cent of Yahoo’s shares, wasn’t a great deal easier on the company:

I’m extremely disappointed in Jerry Yang. I think he overplayed a weak hand. And I’m even more disappointed in the independent directors who were not responsive to the needs of independent shareholders.

One thing’s for sure: Solicitors for shareholders won’t go hungry while the fallout from these events unfolds.

How did Yahoo perform on Monday? Their share price fell 15 per cent, at just over $24. No wonder CEO Jerry Yang says he’s still open to another offer from Microsoft.

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