I pointed out yesterday that it’s unclear Microhoo is finished. The simple reason is that the deal is close to an economic imperative for Microsoft. The economies of scale in Web ad sales demand that Microsoft be as big as Google, and Yahoo would seem to be the only way it gets there. NYT’s Dealbook supports that in an interview with a big Yahoo shareholder, Legg Mason’s Bill Miller:
“They didn’t have a prayer of competing with Google without Yahoo,” he said. The difference between Microsoft’s offer of $33 a share and Yahoo’s demand for $37 a share was a few billion dollars, an amount of cash that Microsoft generates in just a few months, he said. For Microsoft, the downside of not buying Yahoo is far greater than the risk of overpaying for Yahoo by a small margin, he said.
Today’s WSJ repeatedly hits the theme that the deal isn’t dead, e.g., here and here.
Under this reasoning, Ballmer’s exit was a ploy to pound Yahoo stock down to a more reasonable level, as I also noted yesterday. But will that work if the market expects another bid? The gurus are saying Yahoo stock will drop to the low 20s, but that assumes no MS. Watch Yahoo stay around, say, 26 or so over the next couple of days.
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