Business Insight Zone

Ah, tit for tat! Microsoft‘s bid for Yahoo got a wee bit nastier between Saturday and today. On Saturday, Microsoft chief Steve Ballmer sent a letter to Yahoo’s board, chastising it for failing to take Microsoft’s bid seriously. Ballmer said that Microsoft wants the deal to be amicable, but that if Yahoo’s board didn’t take action within three weeks, Microsoft might go to the mattresses cut its bid and appeal to shareholders directly — i.e. would start a proxy war fight.

And then this morning, Yahoo answered back with a big, round “Nuh-uh!” (No word yet if Microsoft plans to answer back with “Uh-huh!”)

N.B. that there’s almost nothing that a business journalist likes quite so much as a nasty proxy fight. (Do you remember the great Bill Cosby line when Fat Albert says, “Ooh, I love to see Herman get a beating?” It’s like that.) So I’m not entirely unbiased here; it would provide me with months of entertainment for this thing to drag out.

Google Sits Back and Grins

It would also provide a certain elephant in the room with even more time to build on its breathtaking lead in the online search market. So if I’m Google, I’d also like to see a nasty proxy fight.

If I’m a shareholder in either Microsoft or Yahoo (or both — there are lots of overlapping holdings), not so much. Proxy battles are expensive in time, money, goodwill, and general taking- one’s- eye- off- the- ball costs. But then, I never thought this whole idea was a great one to begin with. Microsoft can afford it, although they could also afford to buy, say, Tuscany. True, owning Yahoo would give them a little traction in the search market, although still not raising their share as high as 20%. But the integration costs — in time and effort more than money — seem prohibitive.

Yahoo should have snapped at the deal from the beginning. Its own rosy projections aside, it’s not clear that (a) it has any real answer for Google in the marketplace, or (b) it could ever command a similar premium from any other suitor. But it’s hard emotionally to see your company slip from the lofty heights of Internet pioneerhood; despite Yahoo’s assertion this morning that it’s open to further talks, the prospect of being purchased by the Leviathan of Redmond can’t be an especially happy one.

The best, most detailed take I’ve seen on the situation this morning is from Dow Jones:

• Yahoo Responds To Microsoft Letter; Still Open To Deal

Stay tuned . . .

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Previous BIZ thoughts on this topic:

• The Illogic of a Microsoft-Yahoo deal.

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Category: Deals,Internet