Microsoft does not like to be rushed. Everyone is waiting for its next move, now that the deadline it set for Yahoo to accept its takeover bid expired last Saturday. And everyone can keep waiting. Nevertheless, preparations are being made for an announcement this week from Microsoft on what it will do next.
Out of its various options, the two most likely are either to go hostile with the bid or to walk away. Chief financial officer Chris Liddell signaled as much during last weeks’ earnings conference call, where he also discounted the possibility of a higher bid:
The strongest argument that we should increase our bid because we can afford to is not one I favor. We have yet to see tangible evidence that our bid substantially undervalues the company. In fact we see the opposite.
That might have been posturing, but I don’t think so. Last week, Citi analyst Mark Mahaney put the odds of Microsoft going hostile at 40 percent, and of walking away at 10 percent. In the event of a hostile offer, Microsoft could either try to go directly to shareholders and ask them to tender their shares or engage in a proxy battle to replace Yahoo’s board of directors. A tender offer would trigger Yahoo’s poison pill and get really messy and expensive. (For an excellent discussion on how all of this would work, read Marc Andreessen’s post on the subject).
All signs point to a coming proxy battle. Microsoft has picked its alternate slate to replace Yahoo’s board of directors. And it has gathered around itself a group of advisers known for their bare-knuckle M&A tactics. Who is this group of reservoir dogs that Microsoft would bring to a fight to take over Yahoo’s board? They include:
—Morgan Stanley. Investment bankers Paul Taubman, Drew Guevara, Thomas Whayne, Chuck Cory, and Rob Kindler are on the crew assigned to Microsoft. Taubman heads up Morgan Stanley’s entire global mergers and acquisitions group (but he also had the dubious distinction of advising Time Warner on the AOL deal).
—The Blackstone Group. Jill Greenthal is advising from this high-powered investment bank that specializes in M&A, among other things.
—Joele Frank. She is the person you call when you are doing a hostile takeover and you need special public relations for the occasion. That is what she does: hostile PR. She is good and she is fierce.
—Innisfree M&A. A proxy solicitation firm that handles the logistics of a proxy battle.
These are all veteran fighters who don’t mind getting a little blood on their hands.
They’ll be up against Yahoo’s investment bankers, led by Goldman Sachs (Lehman and Moelis are also advisers). We’ve also heard a rumor that low-key M&A consulting firm MacKenzie Partners is helping Yahoo. (But judging from all the dead links on their Website, maybe it is Yahoo who should be helping them)
Should Microsoft walk away or unleash its reservoir dogs?