“If we have not concluded an agreement within the next three weeks, we will be compelled to take our case directly to your shareholders, including the initiation of a proxy contest to elect an alternative slate of directors for the Yahoo! board.”
- Microsoft’s Steve Ballmer on April 5, 2008
That three week deadline expired on Saturday. So what happens next?
Citigroup’s Mark Mahaney says in an April 25 report there is a 45% chance of a merger at a price somewhat higher than the initial bid, a 40% chance that Microsoft will go hostile, a 10% chance that Microsoft walks away, and a 5% chance for deal at the original bid to be accepted. That means he thinks a deal in some form is 90% likely.
Marc Andreessen lays out the “go hostile” game plan in a blog post partially written by two merger and acquisition attorneys. If that’s the way this goes, Microsoft needs to announce their alternate board slate and finalize the lobbying of shareholders.
What’s surprising is that talk of the Google alternative has died down. Yahoo has shown a willingness to go scorched earth throughout this ordeal. The announced trial deal with Google went very well; our sources say Yahoo had 85%-100% revenue gains compared to running their own ads.
Certainly there are regulatory issues around the deal. It’s also clear, however, that Yahoo could possibly get away with a deal that continues to give Google just a small percentage of overall queries. Such a deal could conceivably pass regulatory review. And Yahoo can simply direct the highest value queries to Google. In theory, directing even 10-20% of total searches to Google could produce nearly the same revenue gains as deal to outsource 100% of search queries.
Is a Google deal good for Yahoo? As late as January, Yahoo was saying no. In their Q4 earnings call Yahoo argued that the best way to build long term shareholder value was by having their own search advertising platform. And last October, during the Q3 earnings call, CEO Jerry Yang said “We believe having a principal position in both search and display advertising is critical to creating that long-term value.”
Now, though, Yahoo says their Google partnership is a test to explore ways to “maximize stockholder value.”
It’s Microsoft’s move. Expect something by mid week.