Is Microsoft's Bid for Yahoo Too Cheap?

While the conventional wisdom around Wall Street and elsewhere today is that Microsoft’s bid for Yahoo is impossibly rich and shuts out all possible competitors, that’s certainly not the feeling around Yahoo.

“This deal’s not going to get done at that price,” said one senior exec. “The reason Yahoo stock is so depressed is all about lack of leadership and not about potential. Microsoft is taking advantage of that.”

Which, I have to say, is a pretty savvy move on the part of ultra-aggressive Microsoft CEO Steve Ballmer.

Still, such behavior might cost him, especially since Yahoo brass were not happy about the hostile bid. Said one person close to the situation: “Microsoft might win this unsolicited battle, but they are going to pay a lot more for that victory.”

They might have a point. Yahoo shares drifted below the dangerous takeover line–$20 a share–this week.

That’s what prompted Microsoft to move, said sources, because a $31 bid looked hefty in that lackluster light.

Indeed, some think that if the company was managed more aggressively–and that has been a big if at Yahoo for far too long now–Yahoo shares could be trading closer to $30 a share.

And that makes $31 kind of a bargain.

It’s not such a leap of faith, in fact.

Many mid-level and senior Yahoo execs have told me that CEO Jerry Yang’s too-cautious approach has been the problem and that there was pressure building for a change.

Many were unhappy, for example, with his uncertain performance when announcing Yahoo’s quarterly results earlier this week and felt his less-than-confident move to make cuts via layoffs was badly bungled.

Most suggested that more aggressive consolidation and a stronger influence of the board were coming. Some board members, in fact, have been in touch with senior staff recently to gauge the mood internally.

In addition, some were pushing for more radical shifts, including outsourcing of its search-ad business. In fact, Yahoo has been in talks with Google off and on, including recently, about taking over parts of its search monetization business, a move that surely would have sent its shares soaring, given that it would have cut costs and gotten a big guaranteed revenue stream.

“Even with all the weakness and patience from investors running out, we still had some options,” said one exec. “Now, Microsoft is making us look like this is our only option.”

Still, many execs also welcomed the bid too. “Finally, it might be the catalyst we needed to bring true change to the company,” said another exec. “Of course, it might be too late.”

Please see this disclosure related to me and Google.