After Yahoo (NASD:YHOO) rebuffed its increased $33 per share bid, Microsoft (NASD:MSFT) has walked away from the table. Reports indicate that Yahoo's Jerry Yang indicated they would not accept an offer below $37 per share, a valuation of roughly $53 billion.
So, what's next for the two companies?
First, we can expect to see Yahoo stock price plummet at Monday's open. The stock was trading around $19 before the initial bid; it had traded up to around $30 per share in February and has hovered in the $27-29 range for the past month. Fred has a poll on his blog asking what Monday's closing price will be. I pegged it at $24, though I think it may initially trade down to the $21-22 range before trading back up to a close of $24-25. I've posted Fred's poll below, so feel free to cast your vote.
Longer-term, I think we'll see Yahoo try to go it alone, at least for the time being. There were a few other potential suitors out there such as AOL and News Corp, but neither is in position to do the deal right now. I do think hope that Yahoo will take some of the knowledge gained from this experience and change they way it does business. The first step should be a deal to use Google for search, following the recent test of that technology. Hopefully, recent events will put enough pressure on Yang & Co to make the changes that many had lobbied for even prior to Microsoft's approach.
On the Microsoft side, this is clearly a black eye for Ballmer, though they are probably better off in the long run that the deal fell apart. Microsoft has taken the position that to close the gap with Google, they need to catch up on the Internet advertising side of the business. But the bigger threat to Microsoft is Google making inroads in the corporate IT market with cloud versions of Microsoft Office or Exchange. As RBC analyst Robert Breza noted in the past, using the same $45 billion they planned to spend for Yahoo, Microsoft could probably acquire Salesforce.com (NASD:CRM), web advertising analytics platform Omniture (NASD:OMTR) and Facebook. The combination of those three would strengthen Microsoft's existing products and provide them with a competitive foothold against Google.
In other notes and comments about the non-deal:
Kara Swisher's BoomTown decodes Steve Ballmer's breakup letter to Jerry Yang.
TechCrunch shares the text of Ballmer's internal email to Microsoft employees outlining their post-Yahoo strategy.
Larry Dignan notes that Google is the big winner (though I think Google might have been even better served by watching Microsoft struggle to integrate Yahoo for the next 18 months)
Danny Sullivan posits that Microsoft was pound foolish in not putting up another $5 billion to get the deal done.
Quizzes by Quibblo.com
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