“You have three weeks to decide”, Microsoft Tells Yahoo

The largest acquisition in the history of Microsoft entered round 2 as it gave Yahoo’s board a 3 week timeline to start negotations. In the worst case, Microsoft would have to take the deal to Yahoo’s shareholders directly.

An excerpt from ZDNet:

Ballmer, in his letter, indicated that Microsoft would ask Yahoo investors to tender their shares to the software giant, which would park them until it could get its opposition slate elected. While Microsoft would not be able to gain control of Yahoo by taking that measure, it will send a clear message to Yahoo if enough of the Internet company’s investors side with Microsoft. Basically, it would show Yahoo how successful Microsoft would be in getting its opposition slate of directors elected, when those investors are asked to vote on Yahoo’s new board.

In a response to the above terms, Yahoo mentioned that it was looking for a better deal or no deal at all.

Excerpt from ZDNet:

Yahoo writes: “Your comment that we have refused to enter into negotiations to conclude an agreement are particularly curious given we have already rejected your initial proposal, nominally $31 per share at the time, for substantially undervaluing Yahoo! and your suggestions in your letter and the media that you are considering lowering the value of your proposal. Moreover, Steve, you personally attended two of these meetings and could have advanced discussions in any way you saw fit.”

Yahoo is optimistic about its prospects in the online space with a positive outlook despite the slowdown in the economy. Another important point mentioned is that Microsoft needs Yahoo more than Yahoo wants to team-up with the Redmond giant. And while the battle of “letters” resumes, Yahoo has not let stop its developments in the product space with the recent one being the AMP Ad platform for ad management.

A merger between Yahoo and Microsoft does seem very likely in the future as no other matching bid has come to the fore yet. More crucial is how long it would take for the merger to be completed and how much more ground it cedes to Google in the search space.

Search is more about the inertia of adoption than superior technology. That means that even if Microsoft and Yahoo offer better search compared to Google, Google’s own service will have to deteriorate radically for users to make a switch. That said, parhaps Microsoft has set it eyes on a lot more that just search. Yahoo is a hot web property and with the rate of mobile communication and devices adoption across the globe, there is a shift happening in the medium to access the Internet. In the mobile space, Yahoo has been at the forefront with its partnerships with telecommunication firms and its products that compete well with other offerings in the same space.

With handsets for Google’s Android platform coming out this year, Microsoft also faces more competition in its turf of software for handsets. The big question is how Microsoft manages the acquisition and does not cede ground in technology space (both search and mobile) to Google.

Arun on April 8, 2008 Subscribe to our RSS Feed