Microsoft Walks Away from Yahoo Deal

Look for Yahoo stock to fall off a cliff. They better iron out that Google Ad deal or we might see Yahoo back in the low teens again. If I was Carl Ichan I would be spitting mad about now.

Yahoo! Inc. (Nasdaq:YHOO - News), a leading global Internet company, today announced that discussions with Microsoft regarding a potential transaction -- whether for an acquisition of all of Yahoo! or a partial acquisition -- have concluded. The conclusion of discussions follows numerous meetings and conversations with Microsoft regarding a number of transaction alternatives, including a meeting between Yahoo! and Microsoft on June 8th in which Chairman Roy Bostock and other independent Board members from Yahoo! participated. At that meeting, Microsoft representatives stated unequivocally that Microsoft is not interested in pursuing an acquisition of all of Yahoo!, even at the price range it had previously suggested.

It Seems Microsoft May Blink on Yahoo Deal and Offer $35 a share

It seems that way to "a person familiar with the matter."

The New York Times, citing unnamed sources, reported Microsoft boosted the offer by "by several dollars" per share, lending weight to the assertion by many market analysts that Microsoft can afford to pay up to $35 a share.

Representatives from Microsoft and Yahoo declined to comment on the negotiations. The talks were expected to continue into the weekend.

I guess the good trade was to be long Yahoo and short Microsoft after all. I was thinking of going long Yahoo to catch this deal but I was too afraid of Microsoft walking away from the thing all together. If MSFT did walk away then you would see Yahoo's shares drop back down to the teens. Now it looks like a $31 to $35 or so a share sweetened deal may be on the table. If Yahoo walks away from this offer, however, then I would be betting that Microsoft scuttles the whole thing and their share price should head back north of $30 again.

What Will Come from Microsoft's Buyout of Yahoo

This announcement was many months in the making but it looks like Microsoft will be buying out Yahoo to the tune of $45 billion. The article above gives us some color on what might happen when the two companies merge. The first thing that will probably happen is that MSN will probably get folded into the Yahoo site so MSFT will stop losing money there. This change would be very intriguing though.

Eventually, a teamed-up Yahoo and Microsoft might be able to rethink the PC
desktop — where Windows still runs 90 percent of the world's PCs — so that
Internet data such as stock prices, sports scores and weather are automatically
baked in.
"We all have our home page because we have a concept of a home page," Campbell said. Before long, "we may not have a home page — it might just be the background of my desktop. There's no reason why Microsoft can't push this
another level."

So Yahoo might provide the userbase and content for a web and non-web collaboration type of software. So it will be kind of like those Vista Gadgets but for the entire PC and not just the Sidebar. It would be a kind of internet dashboard built into a web enabled PC.

Maybe the next Office or Windows will be an all-online version where there will be an option to store your documents, bookmarks, settings, etc. in a Yahoo Data Center (a MSFT one would not be trusted) and sped up using virtualization software. The icons on your PC will simply connect to software running somewhere "in the cloud" that doesn't have to be upgraded or patched at the PC level since that will all be done on the server. It would be kind of like World of Warcraft servers but for Corporate IT and your avatar is yourself. You could even have complicated Database software or e-mail where both the software and the data files are both stored at the Yahoo data center. You could also have everything searchable with Yahoo's software. It would be a Salesforce.com for productivity suites.

Then you add connectivity from any device be it cell phone, smart phone, laptop, set-top box, etc. then you will have "One Homepage to Rule Them All" accessible 24-7 from any broadband connection in the world. So this Yahoo/MSFT OS combo will not be some POS software that slows down your PC like Vista but instead it will be an always-on Web 2.0 productivity device.

Yhoo+MSFT is a no-go

Now this is bad news for all those people running YHOO up today.

There's too much overlap between Microsoft and Yahoo, and to try to merge the company cultures of two large companies like that in general is hard," Hallerman said.

Hallerman said Microsoft would be better off buying an ad network to beef up its own operations, the same way Time Warner Inc.'s AOL has seen its advertising revenue grow following the acquisition of Advertising.com's technology and sales force.
I agree with him 100%. I agree that buying out 24/7 Real Media (TFSM) for $575 million and then trying to compete is a better idea then just plunking down $50 billion to get rid of one of your competitors. You do get YHOOs 27.5% of the advertising pie added to your 11%. You would still be down from Google's 48% though. Now Google buying out Yahoo would be interesting though. Anti-trust stuff would kibosh that deal though.