As reported by the Wall Street Journal, Microsoft has retracted its offer for Yahoo in a surprise change of events. It was widely suspected before that they would be “going hostile” with their original $31/share bid for Yahoo (NYSE: YHOO), and after some negotiations this weekend… Microsoft CEO Steve Ballmer decided to walk.

I had talked about the deal way back on March 9th in a post about the possible takeover. But I guess things weren’t meant to be, I see this as a win-win-win situation as Microsoft doesn’t throw away money, Yahoo doesn’t get destroyed form the inside out, and MSFT shareholders keep their sanity.

From the Wall Street Journal:
“Microsoft Saturday released a letter from Chief Executive Steve Ballmer to Yahoo CEO Jerry Yang saying that Microsoft had said it was willing to raise its offer to $33 a share for Yahoo, but Yahoo demanded at least $4 per share more.“

So where does Yahoo get off demanding so much money, eh? These guys are the laughing stock of the financial world now because they are demanding an unprecedented amount of money… YHOO stock isn’t worth $20…. let alone almost twice that! The drivers for growth in this company are all gone stale. Google, and heck, even Microsoft are tearing them apart on the internet, and there’s really nothing beyond that for Yahoo.

What was most intriguing was that Ballmer actually upped the bid to Yahoo’s CEO Jerry Yang to $33 per share, which was really not anticipated. A lot of people, myself included, see Ballmer as the kind of guy who will make his demand and never back down… kind of a ruthless conqueror of sorts. The fact that he was able to bend and raise the bid should have been enough for Yahoo to accept. I feel like they are dooming themselves and will never get their stock back to that much value.

Wall Street analysts have estimated that shares of Yahoo would fall to $20-$25 if Microsoft walked… I am thinking they are spot on. I’m not so sure what Yahoo is anticipating as far as movements go in order to reposition themselves as market leaders… but you hear names like Google and Time Warner thrown around quite a lot. We’ll have to see what happens.

Maybe if Microsoft acquired Yahoo, bloggers would have seen some insanely cheap advertising deals in a competition scramble… but hey, I see this as a win. This Microsoft empire shouldn’t be getting that much bigger any time soon, and I don’t think anybody wants them having that added pricing power.

-The Net Fool

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We’re all getting a bit sick of this continued Microsoft-Yahoo takeover bid dispute, with Yahoo running around trying to avoid the hostile bid while Microsoft loses more market cap. by the second. After seeing many bloggers try to talk about this, unsuccessfully, without much of an idea of what is actually happening, I feel like it’s high time the Net Fool steps in to let you know what the deal is really about

All of this mess started January 31st, when Microsoft announced a bid for Yahoo at $31 a share… a huge premium versus Yahoo’s then $19/share price. Of course, this triggered a sell off of Microsoft (NYSE: MSFT) and a feeding frenzy on Yahoo (NYSE: YHOO) as most mergers typically do. But Yahoo formally rejected this bid, saying that the $31 dollars per share “undervalues” their company. Is this true? I don’t think so! But Yahoo doesn’t seem to care.

Fast forward to today, Yahoo still doesn’t know what it is doing. Everyone should realize by now that the news you hear about “oh Yahoo is trying to team up with AOL and News Corp” or “wow, Yahoo is going to team up with Google to fight Microsoft” is all a load of crap. All they are doing is stalling, Microsoft controls them and everything that they do. I know it would seem to most that this takeover is basically the clash of two titans, but its not. It’s Microsoft, a larger company by FAR, playing the “coiled python” and waiting to move in for the kill. It’s Steve Ballmer, CEO of Microsoft, throwing a tantrum as he realizes that Yahoo is effectively destroying Microsoft’s shareholder value while we wait in limbo for the deal to go through.

Now that we’ve waited so long, there is a lot more to consider. It is looking as though the $31 per share was the correct price, and if we could turn back time now I think the deal goes through. The two-faced problem? GOOGLE! Since January 31st when the deal was announced, shares of Google have dropped off the charts losing about 15% of their value. This not only makes Yahoo’s complaint that $31/share was too little all the weaker, it makes the chances that Ballmer will want to increase their bid to $38-$41 per share weaker! Truth be told, I think that the reason Microsoft wants Yahoo is not to strengthen their business model, but to slow down Google. Yahoo somewhat realizes this, and they don’t want to become a pawn in the Microsoft-Google war. But will they even be able to resist much longer… and is it worth it?

On Microsoft’s side of the coin, we now have three worst-case scenarios:

1. Microsoft walks away from the deal
   Here, Microsoft’s shares take a hit, but then again… they don’t need to waste cash on Yahoo so they are the best off in this case
2. Microsoft acquires Yahoo
   It’s about time. But Microsoft’s share value plummets further because now they are spending a lot of their cash flow on an unsuccessful business
3. The stalling continues…
   Microsoft continues to deteriorate slowly, while Yahoo sits in the balance thinking up more reasons they are worth more then they are

Nice, eh? Shareholders are fed up and getting more and more frustrated by the minute.

The Net Fool’s Prediction: Microsoft eventually increases their bid to about $35. This is less than the originally proposed counter-offer, but appropriate as Yahoo’s peers have fallen off the map over the past month. Our friend Steve Ballmer has a power problem, and losing this bid is not an option to a tech powerhouse that wants to control anything and everything. Once acquired, rather than trying to assimilate them into their business model, Microsoft launches an attack on Google. We’re talking lower online advertisement costs, search engine incentives, basically anything to slow Google… using Yahoo as a loss leader to gain market share. Will this work? Who know.. but increased competition could definitely benefit bloggers

-The Net Fool

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