MicroHoo: Cash Is King?
So why hasn’t Microsoft (MSFT) raised the $31-a-share price of the bid it has made for Yahoo (YHOO) yet?
I have been pondering this question recently, as the Yahoo- Microsoft deal sits in limbo, awaiting the results of Yahoo’s earnings next week and the progress of “authorized” talks between the pair.
One might call it a moment of calm before what could be a very nasty storm, if the situation moves onto a proxy fight. But if I had to bet now, while I am assuming it won’t drop the price, I also don’t think Microsoft needs to up the ante at this point.
First, while AOL sources tell me they thought it was a done deal last week, which the company apparently expected to be approved at Yahoo’s board meeting, even if Yahoo does agree to buy the Time Warner (TWX) unit, I expect Microsoft to wage a proxy fight even–especially!–in the event of a Yahoo-AOL union.
And I don’t think that even if the results of Yahoo’s two-week search-ad deal with Google (GOOG) are spectacular–here’s a good bet: They are sure to be–it will not necessarily open the software giant’s wallet more.
With Google’s dominance of the search market, I am not too sure Microsoft–as deeply and weirdly paranoid as its execs are of Google–thinks it will be too tough to mire, if not scuttle, such a partnership in a deep regulatory morass.
A better scenario? Microsoft should wait until the last possible moment and then convert the deal to all-cash, which would keep the price at $31 a share in real terms, since the current bid’s value has been depressed by Microsoft’s lagging stock price.
After all, didn’t Yahoo CEO Jerry Yang say that’s one of things he wanted in his most recent letter to Microsoft, after it threatened to go hostile.
Yang wrote: “To be clear, this includes a transaction with Microsoft if it represents a price that fully recognizes the value of Yahoo on a standalone basis and to Microsoft, is superior to our other alternatives, and provides certainty of value and certainty of closing.”
And cash does provide that certainty of value and certainty of closing–probably a smaller price for cash-gushing Microsoft to pay to end this more quickly.