Time for Microsoft to Go Hostile

This weekend Microsoft withdrew their bid to buy out Yahoo! for $31/share. They reportedly look the offer as high as $33/share, but Yahoo! was looking to get $37/share. Now in premarket trading, Yahoo! shares are down over 20% at around $22/share. I think it was a good move on Microsoft’s part. Rather than pay the $31/share that they were offering or the $37/share that Yahoo! wanted, Microsoft can now perform a hostile takeover for nearly 70 cents on the dollar on their original offer (60 cents on the dollar of what Yahoo! was asking). It’s just another twist in the ongoing saga between Yahoo! and Microsoft.

Microsoft will likely lay low for a while now to see if Yahoo! will come crawling back as they lose billions in market value. It will also allow some time for the share price to fall and stabilize a bit before they begin the hostile takeover. There is also a lot of talk that Yahoo! will take a poison pill by allowing current shareholders to purchase new issues and thus diluting shares (and effectively lowering the stock price). I think this is an extremely poor tactic and undermines the whole purpose of investing in public companies. It is also possible that Microsoft will never pursue a hostile takeover for this reason. Either way, the Yahoo! board of directors needs to be prepared for another barrage of class action lawsuits.

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