A Microsoft and Google tie-up is what the industry needs
The wrangling between Microsoft and Yahoo is like a farce that refuses to end.
After months of on-off negotiations, Microsoft’s chief executive Steve Ballmer is once again willing to return to the table, although his rekindled interest comes at a heavy price. Unless Yahoo’s shareholders oust the board, the standoff will continue. Nor is Ballmer willing to offer the $34-a-share, or $47bn, he offered in May.
The Blame Game
Yahoo has itself to blame for its weakened bargaining position. Microsoft’s offer – a 62 per cent premium on the firm’s pre-bid share price – was generous. Few companies would have been able to offer such a huge sum in the wake of the credit crunch and Yahoo was in no position to play hardball. Prior to the offer, its shares were languishing at $19.18, having lost half their value in two years.
Ballmer is relying on dissident shareholder Carl Icahn to orchestrate the demise of Yahoo’s board when he tables a proposal at the AGM in Augus, yesterday revealing they have been in frequent contact. If successful, they will move the target to Jerry Yang, Yahoo’s chief executive.
Few doubt that Yang, who founded Yahoo in 1995, was the roadblock to a deal that would have been good for shareholders and the industry.
Purple Pride
His resistance was not down to price but came from his intense dislike of Microsoft as a firm. Yang sees Yahoo as a cool, off-beat, silicon valley company and, like many of his staffers, is instilled with what insiders call “purple pride”. For him, Microsoft couldn’t be more different: grey, besuited and unfashionable.
There is, of course, some truth in Yang’s views. Microsoft made its billions through software, not the internet, and has traditionally maintained market share by being ruthlessly cloistered and protectionist. The outward looking, open approach fostered by the likes of Facebook is entirely alien to Microsoft.
In bidding for Yahoo, Ballmer was signalling that the firm could no longer go it alone on the internet. Its back up plan of cobbling together minority stakes in properties like Myspace and Facebook is nowhere near as compelling as a full merger with Yahoo.
Yang’s prospects, however, are far worse. Even if the board survives Icahn’s coup in August, it is unlikely that he will be in the top job at the end of the year.
A Force of Reckoning
Together, the two firms could provide some much-needed competition to their arch-rival Google. Although a merged company would still only account for around 30 per cent, compared to Googles 60, Yahoo’s understanding of the internet combined with Microsoft’s corporate muscle could create a real contender.
Advertisers are also desperate for a tie up. Increasingly, they’re growing uneasy about spending so many of their online dollars with a single firm. If Yahoo’s shareholder have any sense, they’ll back Icahn and kick out the board. They’ll also have to accept that, in the next episode of this saga, Microsoft has the upper hand.