In part one of this comment (Febuary 2/08 ) I said:
Some mergers are defensive, some are driven by competitive opportunity, and others largely by management egos and investment bankers hooking for commissions. This seems to be one of the latter: Yahoo was over valued relative to its earnings potential before the deal, and Microsoft's 62% premium over the penultimate closing price seems absurdly over the top.
What I imagine (note "imagine" not "know") happened is that the change in Bill Gate's role at Microsoft gave some of the other senior players the opportunity to commit their supporters by ramming through a deal last researched sometime in September or October of 2007 - i.e. before what I think of as the "Soros dip" hit the market.
So, bottom line? I think the best thing Microsoft's board could do is find a legal way to get out with minimal losses - and the most likely thing they'll do is destroy every cent of market value they're putting into Yahoo in an ego driven attempt to merge MSN into it.
Now they're apparently dropping the deal - after raising their offer premium by a further $5 billion in weekend negotiations.
Heads are going to roll at Microsoft over this - look for some key executive resignations and re-assignments a couple of months from now as the dust settles and the winners consolidate their positions.
At Yahoo, however, the damage may extend far beyond the usual circles of winners and losers associated with this type of M&A battle - the organization may be so conflicted that it tears itself apart.
You can expect, for example, the share price to go back to what it was before the offer - falling from over $28 on Friday to less than $20 on Monday and probably bouncing around like a yoyo for a few weeks before finally settling lower yet. Meanwhile quite a few large shareholders are going to want to know why management refused Microsoft's significantly over-valued offer - and I'd bet a lot of them are going to turn their lawyers lose to go after somebody for the money.
My guess is that the effects on Yahoo will be so debilitating lots of people are going to believe that the results reflect Microsoft's "real goals" in making the offer - destroying the enemy through market manipulation. Anything's possible, of course, but I just don't see anybody, not even Balmer et al, betting the better part of $31 billion (the offered market premium) that a few senior players at Yahoo would win their battle to fend off the Microsoft offer and so don't believe this was planned.
But time will tell, because Yahoo's management can't begin to cover the gap in share prices and the Microsoft people behind the deal will have some kind of plan B we haven't seen yet