Yahoo's Nightmare Scenario, Part 1
Here’s what many people within Yahoo (YHOO), who are not CEO Jerry Yang and the board of directors, are chattering about these days: That the Internet portal will not make a deal, any kind of deal, related to the outstanding unsolicited acquisition offer by Microsoft (MSFT), before it has to report its first quarter in late April.
Given worries about an online ad recession–worries that have, for example, sent industry leader Google’s share price hurtling downward of late–some at the company are concerned about possible weak results and what it might do to the company’s negotiating power.
If Google (GOOG) has a cold, the thinking goes, everyone else might suffer from a more serious flu.
“Yahoo’s core business can’t show signs of weakness the way it has in previous quarters,” said one person close to the company. “And since the landscape is certainly uncertain for everyone, Yahoo has to have a definitive plan of what it is going to do.”
Yahoo will soon be certain of those results, since it closes its first quarter at the end of the month and its earnings call with investors and analysts will be on April 22.
If its results are disappointing, it will have a big impact on the current takeover bid by Microsoft, launched at the beginning of February.
Since then, Yahoo has rejected the Microsoft bid and has been searching for alternatives.
One of these options–a deal with News Corp. (NWS) and its MySpace social-networking site–seems to have dried up, after its CEO and Chairman Rupert Murdoch indicated at the Bear Stearns conference earlier this week that it was unlikely.
Yahoo is still pursuing a possible deal with Time Warner (TWX) and its AOL unit, according to sources at both companies, even as AOL has seen tumult in the executive ranks and especially in its Advertising.com unit recently.
In fact, Time Warner CEO Jeff Bewkes noted yesterday at the same Bear Stearns conference that AOL was open to being combined with another company, “whatever configuration makes it the strongest and the most valuable.”
I am not clear what the benefit of uniting two troubled Internet companies is, but I am sure AOL and Yahoo investment bankers can explain it all away (taking tips, presumably, from the advisers who cooked up the first disastrous AOL merger with Time Warner).
Most think the more likely scenario will be that Yahoo will eventually have to pursue talks with Microsoft.
If so, there are hopes by some shareholders that Yahoo can extract a higher price from the software giant, which has so far seemed unwilling to budge on its initial offer of $31 a share in stock and cash.
But weak quarterly earnings could solidify that position.