Yahoo! announced yesterday that “the Yahoo! Board of Directors has carefully reviewed Microsoft’s unsolicited proposal with Yahoo!’s management team and financial and legal advisors and has unanimously concluded that the proposal is not in the best interests of Yahoo! and our stockholders. After careful evaluation, the Board believes that Microsoft’s proposal substantially undervalues Yahoo! including our global brand, large worldwide audience, significant recent investments in advertising platforms and future growth prospects, free cash flow and earnings potential, as well as our substantial unconsolidated investments. The Board of Directors is continually evaluating all of its strategic options in the context of the rapidly evolving industry environment and we remain committed to pursuing initiatives that maximize value for all stockholders.”
What could be the different evolution from the current situation? There are three main solutions for Yahoo:
* looking for a higher Microsoft bid
* staying independent
* looking for another ally
It is true that Yahoo and Microsoft cultures are different and those Yahoo founders still own around 10% of the company. They are reluctant to turn over control to Microsoft in case of acquisition and we don’t see Steve Ballmer buying Yahoo without taking full control of it. The initial rejection is also part of the negotiation tactic for unsolicited proposals. There are many important institutional investors that own a large share of Yahoo’s capital and that will be happy to cash some money in uncertain market. This is even truer when Yahoo operational track record has not been very good these recent months. The cost cutting measures announced recently are not the sign that the company looks confident with its future strategy. Names for other allies like AOL have been mentioned in the press, but I don’t see any company that could significantly improve Yahoo’s Internet business. Only Microsoft and Yahoo combination could create today an important opposition to Google. My prediction is that either there will be an acquisition based on maybe better financial terms or Yahoo will try to continue to control its own future but will face a difficult 2008. Not only it will have to continue facing a strong Google opposition, but the overall advertising context should become negative with the slow-down of the US economy.