Sunday, 4 May 2008

Microsoft abandons Yahoo bid

This weekend it was announced that Microsoft’s revised bid of $33 per share for Yahoo had been rejected and CEO Steve Ballmer announced that he was dropping the bid.

As readers know this was exactly what we had advised Ballmer to do all along. But I doubt this was the reason!

What happens now?

1- Everyone expects Yahoo shares to dive. They were trading at $19 before the bid but nobody expects them to fall THAT far. Walter Price, the fund manager at the RCM Technology Investment Trust (where I am an NED) reckons a $5 fall on Monday from its $28.7 closing price on Friday.

2 - Is this ‘the end’ for a Microsoft/Yahoo coupling or merely a ‘ploy’? Will Microsoft come back with another bid when the share price falls?

3 - What will Yahoo do now? Hopefully they will quickly explore and consummate a deal with either AOL or News Corp (Myspace) or both. I doubt a full blown takeover from Google but fully expect a much closer working relationship. Bluntly, if Yahoo did all that, shareholders might get to the $37-$40 per share they were apparently expecting from Microsoft.

4 - What will Microsoft do now? That’s an interesting one! Bluntly, I have always believed that smaller acquisitions work better. I’d be looking at a range of acquisitions to bolster Microsoft in business systems for SMEs, Cloud Computing, entertainment, social networking and establishing a real presence in Asia and China in particular. I could give Microsoft a list of a dozen companies they could buy for $46b.

I think going after Google head-on in search just isn’t going to work. If you are looking for ‘eyeballs – which was the reason behind Microsoft’s interest in Yahoo – then there are other ways. Buying CNET, Facebook and LinkedIn would give them a lot of very sticky eyeballs.

5 – What will Ballmer do now? I’ve never much liked Ballmer’s management style. Too ‘angry’ for me. This episode looks like a ‘major management blunder' (International Herald Tribune’s words, not mine). I think if I was a Microsoft shareholder I’d be looking at succession planning again because I don’t think Ballmer has what it takes for the next phase of Microsoft.

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