Microsoft offer withdrawal a negotiating ploy

Message to Microsoft chief executive officer Steve Ballmer: we don’t believe you.

A steadfast, hypercompetitive person such as yourself doesn’t give up on what could, will easily be the largest takeover in company history that easily.

Yet that’s exactly what Mr. Ballmer claims Microsoft did last night when the company said it has withdrawn its US$47-billion offer for Yahoo, after upping its initial offer by US$5-billion or US$33 a share. The previous offer was US$29 a share. Yahoo, apparently, wanted US$37 a share.

Microsoft, wisely, also said it doesn’t want to make a hostile offer for the company, a believable statement as such a move would result in mass departures and disruption at Yahoo.

“Clearly a deal is not to be,” Mr. Ballmer wrote in a letter to Yahoo CEO Jerry Yang yesterday.

Bollocks. This is one of the oldest negotiating tricks in the book of deal making. The popular opinion still holds that the parties will come together as Microsoft has determined it needs Yahoo to better compete against Google. The question is where the standoff ends of course.

Either way, it’s clear Yahoo has overplayed its hand. The company’s stock, which closed at US$28.67 on Friday, will tank tomorrow (Monday) the question is by how much. This may in fact, make Microsoft’s takeover attempt easier over the long term. Why? Obviously, the stock is going to drop which gives Microsoft a cheaper entry point with which it can buy the company. Henry Blodget, the former Wall. St. internet analyst, believes Yahoo’s shares will fall to low $20’s, which equates to a 30% drop. But price isn’t really a problem for Microsoft, as its coffers are overflowing with cash at any given moment.

There’s also the issue of shareholder pressure. Yahoo will now surely be hit with a series of shareholder lawsuits, which may not amount to a hill of beans but will give angry shareholders the opportunity to voice their collective discontent over the botching of the Microsoft deal.

Combined with a plummeting stock price, Yahoo will be under intense scrutiny and pressure to do something of substance. At that point in time, Microsoft’s interest level will rise and a deal will come to pass quickly.

Technorati Tags: Microsoft, Yahoo