Microsoft/Yahoo: Dead? Dithering? Drunks?

There are major cross-currents on the Microsoft/yahoo deal after this week’s earnings news from the two companies. What we discovered, in effect, was that what we have here are two drunks holding each other up.

Why? Because both companies’ businesses are squishy and doing somewhat worse than expected. Yahoo wasn’t able to pull out a big beat, and Microsoft wasn’t able to deliver the quarter expected, largely because of Windows weakness (which I think is a bigger issue than Windows piracy). Even if this would be a horrifically messy combination to bring off, the two companies need each other.

So, here are the options:

  • Microsoft walks away, for now or permanently
  • Microsoft ups its offer in next 72 hours
  • Microsoft "goes hostile " (feel free to say "ooooh")
  • Yahoo announces a deal with someone else

Granted, some of these are overlapping, as Yahoo could still announce a deal with someone else while Microsoft ups it offer and/or goes hostile. Nevertheless, you get the gist.

What do I think happens? Tough call, but I think Microsoft wants to walks away, hoping to come back with an offer at a lower price after the bottom falls out of Yahoo’s shares again. I just don’t buy that Microsoft walks away permanently, or that walking away now would be anything other than a transparent stratagem. They have had every opportunity to negotiate a higher price, and Yahoo has demonstrated no willingness to countenance once, which has made Microsoft highly reluctant to float one unilaterally and negotiate with itself.

Nasty situation. And, more broadly, a business travesty, with both Yahoo and Microsoft squandering business franchises.