Now Microsoft will have to decide whether to launch a hostile takeover, raise the offer, or drop the bid altogether.
The Story So Far
After trying to negotiate the merger with Yahoo quietly for over a year, Microsoft made its bid public in February. Yahoo then discarded the Microsoft offer by saying it undervalued its business.
The next step the two giants took was the clever use of media to make themselves appear righteous and influence investor opinion in their favor.
However, annoyed by the speed of the progress, about one month ago, Microsoft Chief Executive Steve Ballmer threatened to initiate a hostile takeover of Yahoo if the company did not accede to Microsoft’s acquisition offer by April 26.
Yahoo, meanwhile, explored all alternatives including possible arrangements with Google, AOL Time Warner, and News Corp. All of these efforts proved unproductive.
Why Is Microsoft So Desperate for the Deal?
Both Yahoo and Microsoft have long been losing ground to Google. Google has not only dominated Internet search advertising but also made rapid strides in the field of Internet display ads.
Microsoft realized it had to stop Google fast before it became the next Microsoft. It invested heavily in infrastructure, built data centers around the world, and tried hard to make headway in the Internet search sector. But the results did not cheer the giant.
In search, for instance, Microsoft’s market share in December 2007 was merely 2.9%, and the company’s online business has yet to make any profit.
Yahoo, on the other hand, is deep in a financial slump.
Microsoft is convinced that its merger with Yahoo would help it stop Google from dominating the rewarding online advertising business and allow Microsoft to sweep businesses outside its core software expertise.
Online advertising is likely to surpass $60 billion in business in four years, and display and video ads will make up more than a third of the total. The dream of dominating these categories is what makes Microsoft crave a merger with Yahoo. Yahoo’s top-notch web services make it the most ideal partner for Microsoft.
Which Options Are Available to Microsoft?
Microsoft’s progress in its attempt to acquire Yahoo has been pathetic. The company’s executives have publicly announced that they have several options at their disposal.
Here’s a look at the options the company can exercise:
1. Going Hostile
Microsoft may invite Yahoo shareholders to exchange their stock in the company for cash and Microsoft stock. They may also help replace Yahoo’s board with a more merger-friendly group of directors in hopes of facilitating the approval of the takeover proposal, possibly at a lower price.
2. Walking Away
Microsoft executives have said explicitly that they will not hesitate to drop the bid. While some analysts see the threat as a ploy, it may put pressure on Yahoo’s board as it may result in a reduction of the stock’s value.
3. Raising the Bid
Microsoft has not yet indicated the possibility of raising the bid and has described the current offer as “extremely generous.” However, analysts believe there is still a chance the company will raise the offer by $1 or $2 per share. They believe that such a raise would make the offer irresistible.
Only time will tell what the outcome of the standoff between the two technology giants will be. Let’s hope the merger does not empower a single market player and lead to the disappearance of competition in the online business.