Yahoo's week of drama
Posted
Apr 11 2008, 03:09 PM
by
Kim Peterson
My, how things can change in a week. Last Friday, Microsoft was putting the screws to Yahoo, telling Reuters it was "evaluating" its $31-a-share bid for the company because Yahoo has dropped in value.
This week, a furious round of wheeling and dealing has given Yahoo the edge. I have to hand it to CEO Jerry Yang. His flirtation with AOL and Google is putting incredible pressure on Microsoft to raise its offer. The market seems to like where all this is headed: Yahoo shares are
up slightly from where they started the week and closed today at $28.34.
The Street seems to think a Microsoft acquisition is still the most likely scenario, and Yahoo shares are up because of a general belief that Yang can extract more money out of the deal. And while things today may appear murkier than ever, this corporate drama seems to be careening (wildly, perhaps) to some sort of closure, possibly in the next week.
Let's review where the players are today:
Yahoo: Sitting pretty right now, thanks to two brilliant moves this week. First, it agreed to show Google ads next to its Web search results in a two-week trial. Antitrust issues kill any chance of this trial turning into a broader agreement, but who cares? Nothing like invoking Google to strike fear into a Microsoft exec's heart. Yahoo also floated the idea of merging with AOL in return for giving AOL parent Time Warner a 20% stake.
Yang is drawing on the skills of his poker-playing past. The AOL idea walks like a bluff and talks like a bluff, but it could put just enough pressure on Microsoft to up its bid. "While we view agreements with both AOL and Google as 'hairy,' we believe they eventually force a Microsoft bid raise," said Jefferies & Co. analyst Youssef Squali.
Microsoft: Left to ponder some uncomfortable scenarios. It could go higher than $31-a-share, a bid it already said could force it to borrow money for the first time in its history. Or it could move ahead with its hardball threat to launch a proxy battle and take an offer to Yahoo shareholders. Or how about this idea from analyst Charles DiBona: Forget Yahoo and buy AOL and MySpace instead. Microsoft shares fell nearly 3% today to close at $28.28.
Google: I wouldn't be surprised if CEO Eric Schmidt has had a smile on his face this week. Sure, MicroHoo could become a threat, but in how many years? Such a massive integration will take a while, and Google can use that time to strengthen its already dominant market position. Any delay here works in Google's favor, said Stanford Group analysts Clayton Moran and Frederick Moran. "We view Google as a winner," they wrote. Google shares dropped more than 2% today to close at $457.45.
AOL/Time Warner: Time Warner would love to unload AOL, a unit that is fighting to stay relevant in the online advertising business. The combination would allow Yahoo to dominate the third-party network business, according to Silicon Alley Insider's Henry Blodget.
But for all the benefits, why do I get the feeling that AOL is being used as a pawn here? According to the Wall Street Journal, even people involved in the negotiations are unsure about what is real and what is smoke and mirrors: "It remains unclear -- even to the participants -- whether some of them are being used as stalking horses." AOL is a great stalking horse, in this case. Time Warner shares fell more than 2% today to close at $14.27
Yahoo shareholders have a lot to digest this weekend, with all of these scenarios still in play. As for the rest of us? Pass the popcorn and enjoy: this kind of corporate drama doesn't happen very often.
Disclosure: I don't own shares of any companies mentioned in this
post. And while Microsoft owns this blog, Microsoft does not control,
censor or otherwise have any editorial influence over what I write.
