Microsoft Yahoo playing tug of war- a Navtej Kohli report

Navtej
Kohli sums up a recent report throwing light on the controversial
Microsoft-Yahoo merger on his very own Navtej Kohli IT blog.


Microsoft’s dream of acquiring Yahoo Inc. seems not an iota close to
reality. No one knows what would be the upshot of this red-hot slinging
match going on between these two technology giants. It all began when
the Microsoft Corp proposed to take over Yahoo Inc. for paying $31 per
share, when the things spilled out of control.

Industry analysts are casting optimistic speculations that the two
conglomerates will settle down on a mutually agreed price, obviously
higher than the pre-offered $31/ share.

"This is natural brinksmanship - you get to the brink and then you cut
a deal," said Kevin Landis, chief investment officer with San Jose's
Firsthand Funds who were in possession of 460,000 shares of Yahoo as
per the recent statistics available.


The recent turning point in the two-month merger drama was seen on 5th
april,08, when Microsoft chief executive Steve Ballmer sent a letter to
Yahoo's board that expressed his annoyance dilly-dallied approach of
Yahoo. He also warned to unseat Yahoo's board by nominating a more
merger-friendly slate of directors, if the deal gets stretched beyond
three weeks time.


A day later, Yahoo responded by standing by its opposition to
Microsoft's merger proposal, pronouncing that the Redmond, Wash., giant
undervalues the Sunnyvale Web portal, but added that it is open to a
sweetened offer.

In a sharp rejoinder, Yahoo chief executive Jerry Yang and Chairman Roy
Bostock stated "We are not opposed to a transaction with Microsoft if
it is in the best interests of our stockholders. Our position is simply
that any transaction must be at a value that fully reflects the value
of Yahoo, including any strategic benefits to Microsoft, and on terms
that provide certainty to our stockholders."


At the outset, Microsoft offered $44.6 billion for Yahoo, a 62 percent
premium on the value of the company's shares at the time. But the offer
has since dropped to around $42 billion because of a decline in
Microsoft's share price, to which the value of the deal is partly
plummeted.


Ballmer also warned that he would cut the price some more if forced to
make a hostile bid, referring to sluggishness in the U.S. economy, a
stumbling stock market and a recession in Yahoo's business. Hoping to
sustain the pressure on Yahoo board members, he threatened to overthrow
them via proxy contest.


But in its letter Monday, Yahoo seemed immovable from its decision Feb.
11 to reject the bid, saying that Microsoft has put too small a price
on the company. It quashed all the rumors that Yahoo's business is in
trouble and asserted that it has the support of stockholders
controlling a significant portion of its outstanding shares.

"We consider your threat to commence an unsolicited offer and proxy
contest to displace our independent board members to be
counterproductive and inconsistent with your stated objective of a
friendly transaction," Yahoo's letter said.


The two companies have met at least twice since Microsoft made its
merger proposal on Jan. 31. The Yahoo letter disputed an account by
Ballmer that the talks have involved no meaningful negotiations, saying
that the two sides, in fact, "have had constructive conversations
together regarding a variety of topics, including integration and
regulatory issues."

"Moreover, Steve, you personally attended two of these meetings and
could have advanced discussions in any way you saw fit," Yahoo wrote.

The effect of the takeover conflict could rest on Yahoo's first-quarter
earnings, which it will report four days before Microsoft's negotiating
deadline. So, if the yahoo bungles then the company's claim of being
more deserving than $31 per share is significantly weakened.


"If the earnings come out and disappoint Wall Street, the $31 a share
is going to look better and better," said Brian Bolan, an analyst with
Jackson Securities.


Whatever the case, many analysts and investors say that ultimately
Microsoft will be forced to raise its offer to around $50 billion to
get Yahoo's approval or offer to make the entire payment in cash.