News Analysis. Grab the popcorn. Like the fourth Indiana Jones movie, the Microhoo drama has another sequel.
This afternoon, Microsoft issued a statement indicating that a new—and perhaps even different—Yahoo deal is in the works. The statement comes three days after billionaire business buster Carl Icahn launched a proxy fight to oust Yahoo's board of directors.
As I said on Friday, Carl's coup could cripple Yahoo, creating market share and customer grabbing opportunities for Google. Microsoft can't let the proxy fight destroy Yahoo to the benefit of Google.
I'm not surprised that Microsoft is once again talking some kind of deal. A hostile Yahoo takeover would cause Microsoft loads of self-harm, perhaps more than any good. Even a friendly takeover would have questionable benefits because of the enormous product and service overlap between the companies. But if the choice is some Yahoo deal—even a new acquisition—or strangulation at the hands of Carl Icahn, I say make the deal. Any deal.
Microsoft stands to lose more to Google, in a protracted proxy fight that also damages investor and, more importantly, customer confidence in Yahoo. Google is much more likely to pilfer fleeing customers than is Microsoft. Again, as I said on Thursday, Microsoft might be the white knight that can save Yahoo from Carl Icahn.
Even before Carl's proxy fight, I expected that Microsoft would come back if invited by Yahoo. It was clear to me that Microsoft CEO Steve Ballmer's letter withdrawing the bid was aimed at shareholders and even stirring up some revolt among them. But the revolt didn't come from within, but outside in the form of a billionaire investor who has a history of waging proxy battles against seemingly beleaguered companies.
On May 5, eWEEK.com ran a Reuters story quoting Craig Mundie, Microsoft chief strategy and research officer: "The market may wish that the Yahoo deal may come back together, but Microsoft at least at this point assumes it's over." We had some internal debate about what the statement meant. Earlier, an editor had interpreted the statement in a headline to mean Microsoft had closed the door on any deal. I read the statement quite differently.
In an IM conversation with another editor, I asserted: "That's an editorial interpretation. He's not quoted as saying that. He says that Microsoft assumes it's over, which is hugely different. Yahoo could easily come back and accept a lower bid—and there's a deal. These Microsoft people are always deliberate in their wording."
Craig's "at this point assumes" was a huge open door to a future deal. Now, a new deal is in play. Today's Microsoft statement:
"In light of developments since the withdrawal of the Microsoft proposal to acquire Yahoo! Inc., Microsoft announced that it is continuing to explore and pursue its alternatives to improve and expand its online services and advertising business. Microsoft is considering and has raised with Yahoo! an alternative that would involve a transaction with Yahoo! but not an acquisition of all of Yahoo!"
Is what's good for Yahoo good for Microsoft? Companies don't usually disclose transactions while they are being negotiated. The public statement applies pressure on Yahoo's board, which already has got more than it can handle in Carl's proxy fight.
Remainder of the Microsoft statement:
"Microsoft is not proposing to make a new bid to acquire all of Yahoo! at this time, but reserves the right to reconsider that alternative depending on future developments and discussions that may take place with Yahoo! or discussions with shareholders of Yahoo! or Microsoft or with other third parties. There of course can be no assurance that any transaction will result from these discussions."
Yahoo responded to Carl Icahn on Thursday, but, as of this posting, not yet to Microsoft's statement. By itself, the statement is hugely beneficial to Yahoo's board and could instill confidence even as Carl seeks to undermine it (there is the aforementioned benefit of applying "pressure," too). Perception is everything in business. Carl's proxy fight can only succeed by creating negative perceptions about Yahoo's board. Microsoft's four-sentence statement should boost Yahoo perception and likely the share price come the stock market's opening on Monday.
The statement also creates uncertainty because Microsoft might not buy Yahoo after all. No new bid is yet on the table, just discussions that could lead to business transactions or even acquisition of some Yahoo assets. That said, the statement is clear that Microsoft could "reconsider" an acquisition.
If not for Carl Icahn, I would still advocate that Microsoft walk away. Now Microsoft must rally to Yahoo for its own benefit, lest Google gobbles a bunch of Yahoo customers and market share in a short time. Microsoft's motivations may have absolutely nothing to do with the billionaire business buster. But they should.
Regardless, his attack has put Yahoo's board in a weakened position and one where board members should want some kind of deal with Microsoft. If the choice is between the devil Yahoo knows (Steve Ballmer) and the one it doesn't (Carl Icahn), take Microsoft. At least Microsoft wants to make something better out of Yahoo.
