Microsoft--Yahoo Link: What's Next?

Wall Street Journal reported that Microsoft made another presentation of its vision for the combined entity to Yahoo executives on March 10. It is over a month now that Microsoft made its unsolicited bid to acquire Yahoo. Since then, the price has dropped (since Microsoft shares have been trading mostly lower); Yahoo has postponed the date to nominate Board members; and more importantly, no other plausible suitors have emerged. Rupert Murdoch said: “We’re not going to get into a fight with Microsoft, which has a lot more money than us.” So, there goes one serious alternative that Yahoo might have possessed.
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Market Watch reported that: Unless Yahoo management has an alternative plan or is expecting stellar results, either of which we see as a remote possibility, this strategy opens up a risk that Microsoft could withdraw its bid and reinstate it later at a lower price," analyst Jeffrey Lindsay of Bernstein Research.... Bernstein added, however, that he expects Yahoo to report "another mediocre quarter."
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If Yahoo played its cards wrong, it could end up getting a lower value. Then, Yahoo shareholders will be really displeased. Yahoo managers may get de-motivated and the combined entity (which relies mostly on the creative ability of its people--whose compensation may be tied to the upside of Microsoft stock!) may not have the collective capability to develop a coordinated strategy to fight Google (which incidentally is a step closer to acquiring DoubleClick).
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One month may not be a longtime for negotiations to combine physical assets but is an eternity when striving to pool knowledge assets to compete against a formidable leader such as Google. Yahoo may lose talent and so could Microsoft.
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Yahoo should now declare that Microsoft's offer is fair, open its books in good faith. Then, explore if it can get a higher price by showing Microsoft its hidden jewels. I believe that if Microsoft were to up-end its offer, it will be because Yahoo has under-leveraged hidden assets that it could not value from the outside and not because there are competitive offers that top Microsoft's offer of about $41 Billion.

Yahoo--Make up your mind. Delay only weakens you and the combined entity.


How strong will Yang & Co. be after the results of Q1 2008 are declared? Will they still claim that Microsoft undervalued its assets? I doubt it.