There is some debate over how serious a fight Yahoo will put up to keep Microsoft from buying it. Some say that Yahoo’s rejection of Microsoft’s bid is really the search engine’s way of making a counteroffer, and that the two companies will probably settle on a price around $36 per share. One has to wonder, though, whether any deal with Microsoft is a better value for Yahoo’s shareholders.
Cambiar Investors doesn’t seem to think so. They liquidated their holdings in Microsoft when they received news of the company’s proposal to Yahoo. Cambiar president Brian Barish explained that “Microsoft knows even less about the Internet than Yahoo. I can’t see how they can make the business better.” Ouch.
If the potential deal drags out, a lot of Yahoo executives and engineers might leave the company, diluting its value to Microsoft (though there are also rumors that Microsoft is already headhunting over at Yahoo – a consequence, no doubt, of Yahoo’s layoff announcement). Are we dealing with rats leaving a sinking ship?
One has to wonder if they’d be better off – not with Microsoft, perhaps, but with some other company. Bill Houghton at the Brooding Savage notes that Google may be the driving force behind the deal, but a combined Microsoft/Yahoo won’t necessarily be better able to compete. “Both companies are trailing because of poor product portfolios, poor monetization, and a failure to innovate. The combined company…is not much more likely to beat Google.” He believes that Yahoo’s only hope is “a truly innovative product offering. Something that will catapult them ahead of Google, not because it is incrementally better, but because it offers a value proposition that Google cannot match.”
If you consider how much a merger is likely to distract Yahoo and Microsoft from competing with Google, at least for the next couple of years – while Google gets further ahead – accepting even a higher offer from Microsoft could be the final nail in Yahoo’s coffin. Even so, Yahoo may be left with little choice. I don’t envy Jerry Yang right now.
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