When Yahoo says no, it means yes
Yahoo may have rejected Microsoft's offer, but its only a negotiating tactic.
Steve Tobak is a consultant and former high-tech senior executive. He's managing partner of Invisor Consulting, a management consulting and business strategy firm. Contact Steve or follow him on Facebook, Twitter or LinkedIn.
Yes, I know Yahoo rejected Microsoft's bid of $31 per share. But that's just standard negotiating strategy in the world of mergers and acquisitions.
Sure, Microsoft's offer - a 60% premium over the price of Yahoo's stock at the time - was designed, not only to get Yahoo's board's attention, but to back them into a corner. If no other suitors emerge - as I predicted in a prior post - it's an offer Yahoo's board can't refuse without risking shareholder litigation or revolt.
But that doesn't mean Microsoft didn't leave itself any wiggle room, and Yahoo's board knows that. They also know that this is Microsoft's big chance, perhaps its only chance, to jump to number 2 in internet search and advertising and challenge Google. That means Yahoo has some negotiating power.
Yahoo's apparently asking for $40 per share, so I think the deal will go down at $35 or $36.
Some bloggers have suggested that Microsoft never wanted to acquire Yahoo in the first place, or there will be regulatory issues with the deal, or Yahoo is considering acquiring AOL, or any number of conspiracy-like theories. Those folks simply have no idea how this stuff works.
Make no mistake - Yahoo's board is made up of very smart, experienced people. They know that rejecting - truly rejecting, not just negotiating - Microsoft's offer is much riskier for shareholders than being acquired by Ballmer and company.
As I said before, this deal will happen because there simply are no other alternatives for Microsoft or Yahoo. And there are no regulatory issues with Google so far out in front. Congressional committees can huff and puff all they want, there's simply no factual basis for challenging the deal.
Lastly, don't be fooled by Microsoft's need to finance the deal. The software giant is only cash poor because it gave up a big chunk of cash in a one-time shareholder dividend and stock buybacks. There are plenty of ways to get the deal done at any reasonable price.
The next news you hear will be a counter-offer from Microsoft. It may take a while, but this deal will happen eventually.