SAN FRANCISCO – Microsoft Corp. is no closer to buying Yahoo Inc. than when it made its $44.6 billion bid nearly three months ago, leaving the software maker in a quandary over whether the deal is still worth pursuing.
A decision is likely to emerge in the next few days, with Yahoo facing a weekend deadline to accept the offer. Although the deadline expires today, Microsoft has indicated it probably won’t reveal its next move until early next week.
Yahoo’s board has repeatedly said it won’t sell to Microsoft for less than $45 billion, even though the bid spurred Yahoo’s stock higher shortly after it hit a four-year low in late January.
The impasse has left most analysts predicting Microsoft will either sweeten its offer or attempt to replace Yahoo’s board with a slate of directors who will embrace a takeover.
But the architects of Microsoft’s bid – Chief Executive Officer Steve Ballmer and Chief Financial Officer Chris Liddell – have been signaling the Redmond, Wash.-based company might abandon the bid and leave Sunnyvale, Calif.-based Yahoo twisting in the wind.
The public remarks of Ballmer and Liddell could be just part of a negotiating ploy aimed at pressuring Yahoo to the negotiating table.
But some analysts think Microsoft would be smart to walk away now.
By turning a cold shoulder, Microsoft could position itself to return with another bid this summer in hopes of completing the acquisition without suffering through the disruption and rancor likely to erupt if Microsoft were to try to oust Yahoo’s board in a risky process known as a proxy contest.
This scenario could only pan out if Microsoft is correct in its belief that Yahoo is stuck in a downward spiral after steadily losing ground in the online advertising market during the past two years.
Unless Yahoo can bounce back, its shares might eventually drop even lower than their $19.18 price when Microsoft made its initial bid of $31.
If Yahoo’s stock were to plummet into the mid-teens, Microsoft conceivably could return with another offer that would probably be more warmly received than its original bid.
“Yahoo management would be under inordinate pressure to accept at that point,” said Dinosaur Securities analyst David Garrity. “Why go through all the distractions and expense of a proxy fight if you see another way” to an amicable transaction?
Yahoo management has expressed confidence in a turnaround plan that projects revenue increases of 25 percent in 2009 and 2010. But analyst estimates for those years have remained substantially below those targets – a sign of the widespread skepticism about whether Yahoo will be able to reach its ambitious goals.
Yahoo could try to extract a higher bid by farming out some of the advertising on its Web site to Google. The two sides just completed a two-week trial that allowed Google to show text-based advertising among a small percentage of Yahoo’s search results.
A long-term advertising partnership with Google probably would provide a significant boost to Yahoo’s profits, but antitrust concerns might block an alliance between the owners of the Internet’s two largest search engines. Combined, Google and Yahoo control more than 80 percent of the U.S. search market.
Yahoo also has been exploring a possible merger with the online operations of Time Warner Inc.’s AOL, but most analysts view that as a weaker alternative to a Microsoft takeover.