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Steve called Jerry's Bluff - what's next ?

Steve called Jerry's bluff and stayed to his word that he is not going to pay a dime about what's Yahoo is worth to Microsoft. As I wrote in previous post, accordingly to our calculations, Microsoft's walk-away price for Yahoo is $36 (after which it becomes dilutive for Microsoft for more than 3 years). Of course Jerry or his advisers did not know the concept of "not a dime above" or they wanted this negotiation to fail.

I am sure there would be quite a few un-happy Yahoo employees (and shareholders and call option holders) when Yahoo opens below $25 on Monday. In particular many employees were looking for $1.5 Billion retention bonus Microsoft was planning to allocate (which works out on an average to over $100 K per Yahoo employee)

I think the game is still not over - Yahoo will fall below $25 - big Yahoo shareholders would start putting pressure on Yahoo board. I was very surprised that Jerry Yang was doing all the negotiations and Roy Bostock, chairman of the board was no-where in the news regarding negotiations. Looks like Yahoo needs to beef up their legal department

In all this saga, Google seems to be coming out as winner for following reasons:

  • Does not have to worry about formidable competitor for some more months since Microsoft still has lot to catch up
  • Yahoo coming to embrace Google search technology - basically giving up on search advertising
  • Many key Yahoo employees getting frustrated and going to Google
  • Google stock getting another jump due to its formidable lead on fast-growing market
Good luck Yahoo and Jerry Yang in their pursuit of another deals - most likely this saga is going to continue for few more months !

/Shyam

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