Yahoo says no to Instant Assimilation

I was pleasantly surprised to see the Yahoo Board of Directors take the courageous step of standing up to Microsoft's unsolicited takeover bid. I was afraid that the financial advisers and bean counters would convince the board to take the money and run. So the introductory phase of the saga has ended and now the dance will begin in earnest.

I believe Microsoft will make one additional attempt to up their offering price, perhaps as high as $33 to $35 per share, but that is as high as they can afford to go. If Yahoo says "nyet" to that, expect Ballmer to take the gloves off and make a move to oust the current Yahoo board and replace it with one hand picked by Redmond.

Now that the bid has been made, Microsoft cannot allow itself to loose face by letting the takeover fail. They have admitted to the world that the MSN and Windows Live brands are failures and there is no other large player big enough to acquire to make up for that admission. Expect Microsoft to now employ their full arsenal of massive financial resources, effective lobbyists, and legions of attorneys on the Yahoo board. Gates and Ballmer never like to take no for an answer and in this case, they simply cannot afford to.

For better or worse, Microsoft crossed the Rubicon when they made their initial takeover bid. The die is cast and Redmond will not wait long before crying havoc and loosing the dogs of war.

Yahoo's only hope is for a stop gap alliance with Google, Amazon, or AOL to generate some positive income growth, even if it is only short term.

My prediction:
Microsoft eventually gets their way and a puppet board at Yahoo accepts an offer of $34.50 per share after a long protracted fight (around mid May). By this time, Google has poached a not insignificant fraction of Yahoo's best and brightest techies. The US DOJ approves the buyout in early autumn before a new administration not as friendly to Redmond can take office. But the EU antitrust regulators say no to the deal, setting the stage for a nasty international trade squabble that will make the current row over the recent EU fines seem like a pleasant picnic in the park.

The NFL just had their SuperBowl (how 'bout those Manning boys!), now the GeekBowl has begun. The strategies are subtle and the boardroom language is polite, but the hits are just as brutal, the play just as devious and dirty and the consequences of failure are measured in billions.