Real threat or tactic? Yahoo’s stock plummets on threat of Microsoft pulling bid.

April 4, 2008 | MG Siegler | Comments |

ystockdropYahoo’s stock has dropped over 5 percent in after-hours trading on word that Microsoft is considering rescinding its offer to purchase the Internet giant. The news, as reported by Reuters, states that Microsoft feels Yahoo may have actually lost value since the initial offer was made.

Microsoft offered Yahoo $31-a-share in February in a cash and stock deal valued at $44.6 billion. However, since Microsoft’s stock has fallen in value since then, the deal is now thought to only be worth somewhere in the neighborhood of $42 billion. Yahoo’s stock had been trading substantially higher since Microsoft’s offer, shooting up from $19-a-share to near $30-a-share at times. Today’s news has so far pushed it back below the $27-a-share level and if Microsoft ultimately decides to pull out, it certainly could go much, much lower.

That fear, is no doubt part of Microsoft’s strategy here. Since Yahoo formally reject Microsoft’s offer back in February, the two sides have held a few talks, resulting in nothing (our coverage). Microsoft has said it was not going to raise the offer since it feels Yahoo has no real alternative but to accept it. Yahoo, meanwhile, is thought to be against negotiating without a sweetened deal.

While pushing a hostile takeover by replacing Yahoo’s board is widely thought to be Microsoft’s next move (our coverage), such actions can hurt morale in the company being taken over and it certainly would not help Microsoft’s public relations. A threat to pull out could get a number of Yahoo’s prominent shareholders, some of whom have already called upon the company to accept the offer, to step up their pressure in getting the deal done.

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About the Author, MG Siegler

MG Siegler writes about technology trends and new media for VentureBeat, with a focus on mobile topics, social elements and key news stories. Before that, MG wrote about technology on his blog, ParisLemon. Originally from Ohio, MG attended the University of Michigan where he studied film. He's previously lived in Los Angeles where he worked in Hollywood and in San Diego where he did web development. He now lives in San Francisco.

  • As far as tactics go, I think that the game is already done.

    They shook them up, caused them to lose some of their executives and make some moves from a position of fear.

    When faced with great fear involving your survival, the typical reaction is to "freeze" (i.e. do nothing), which is a pretty good strategy for certain scenarios, or bring yourself closer to death by making irrational moves. Yahoo did the latter.
  • @marc - i'm sure you saw that msft issued yahoo a 3-week ultimatum today. we'll see how this shakes out soon.
  • My comment is along the lines of "the observer changes the outcome" :)

    How many people out there use Yahoo for anything (other than maybe email/IM and Yahoo groups)? None that I know.

    MSFT is going to have to split up its growing businesses (mobile and xbox) from it's dying OS business.

    The best outcome in my opinion is if both MSFT and YHOO start splitting up their divisions and re-organizing after this deal falls through.
  • I don't think it could work any other way.

    MSFT acquiring YHOO would result in more layoffs on both sides and a deeper setback to MSFT and YHOO businesses than splitting up their divisions and re-organizing.
  • Microsoft vs yahoo, fun
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