Interview on SkyBusiness TV: the state of the Yahoo! – Microsoft battle

Yesterday I was interviewed live in the studio on SkyBusiness TV on Yahoo!’s rejection of Microsoft’s offer and what it implies. Some of the points I covered:

* There are few alternatives for Yahoo! to Microsoft’s bid. New Corp, which conceivably could have been interested, has denied any plans, AOL has been rumored as a merger partner but is very unlikely to be willing to spend that much, a consortium of private equity firms could be interested but has not emerged.

* The other mooted alternative is to do a deal with Google on search and possibly divest its holdings in Alibaba and Yahoo! Japan, though this is unlikely to be a viable alternative.

* There is strong pressure from the many investment firms that hold stakes in both companies not to increase the bid or to get into a war that will destroy value for both companies. An article in the New York Post shows (below) how many investors would prefer Microsoft to get their way. It also says that Microsoft is looking to hire a proxy firm which would make the situation very hostile. Legg-Mason, which owns 6% of Yahoo!, cannot see alternatives to Microsoft’s offer.

* Turning down the bid was clearly strongly based on Jerry Yang’s personal feelings about the company he founded 14 years ago, and the view that Microsoft is trying to pick up the company on the cheap at it’s 14 year low (remember that Yahoo! was priced over $34 in October). However 8 quarters of declining income mean that there are few alternatives, and the stance seems to be basically a way of getting Microsoft to sweeten its bid. $40 is unreasonable given Yahoo!’s lack of alternatives, but a smaller increase could make this go smoothly rather into a value-destroying battle.