Microhoo dead? Microsoft and Yahoo part ways – for now

By Alex Zaharov-Reutt
Sunday, 04 May 2008 12:35

Opinion and Analysis

Microsoft has decided to withdraw from its bid to buy Yahoo, with Steve Ballmer citing Yahoo's demand for US $37 per share as just too much – but is the deal really dead?

It had been shaping up as the tech world’s biggest ‘deal or no deal’ of 2008 – a multi-billion dollar takeover offer of Yahoo by Microsoft.

But in the end, Microsoft has said ‘no deal’ and walked away, only willing to pay US $33 per share - itself a revised offer that added US $5 billion to Microsoft's original offer of US $31 per share, against Yahoo’s demand for US $37 per share.

During the original bid, Yahoo started investigating advertising deals with Google and implementing other ‘poison pills’ which would make any forced buyout of Yahoo by Microsoft far too bitter a pill to swallow.

Microsoft's letter to Yahoo's Jerry Yang is on page two, while Yahoo's response to Microsoft is on page three, with Yahoo saying it's glad the "distraction" from Microsoft is finally behind it.

But just because the deal is dead now doesn’t mean Microsoft still doesn’t want to buy Yahoo - and the distraction could well continue, if only in the background, at least for the time being.

Obviously, walking away from a deal is a negotiating tactic, too, with Yahoo’s shareholders seeing US $33 a share slip away from their grasp, and the likelihood that Yahoo’s share price will decline dramatically once trading begins on Monday morning, US time.

Microsoft still has its billions, and may decide to target other companies, put more money into its own search and advertising businesses, or stalk a damaged Yahoo and buy it cheaper, later.

Yahoo has reportedly had an exodus of executives over the past few months, and you have to wonder if some of Yahoo’s engineers are also considering their options.

Perhaps Microsoft will now directly target the talent it wants and bypass Yahoo altogether, or perhaps Microsoft will, as has been speculated in the press, turn its attention to AOL, MySpace or other companies still.

What happens now will continue being the subject of intense scrutiny and speculation, as everyone ponders what both sides will do next.

So, what did Steve Ballmer specifically say in his letter to Jerry Yang? Please read onto page 2.