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Why Microsoft was right to walk on Yahoo

06 May

Okay, having 3 emails in the last hour on this subject I figured it was time to weigh in on it and give my 3 cents before I had to spend an hour of replies. 

Here’s the deal Microsoft offered $31, Yahoo on the other hand sat on the idea and responded, "$37!".  Microsoft mulled this over and said, "$33".  To which Yahoo said, "We think… $37".  Now Yahoo says they were "clearly interested". 

For those of you who are buying used cars, or apparently stock from Yahoo… If you make an offer – and they counter with a number cliearly higher than the value of the vehicle it means they’re not negotiating – they’re price haggling.  Negotiation rule #1 – never haggle.  Ever.  Know your price, or you will allow the other man to define it.  If Microsoft had countered say, "$33.50" then Yahoo would have said, "$36".  Eventually, after probably a month or so of game playing they’d have settled on Jerry Yangs price of $35.

Now, here’s the kicker.  Yahoo isn’t worth $35 to anyone but Jerry Yang.  Heck, it’s not worth $33 probably and I’ll tell you why.  Because it’s a fixer upper.  After Microsoft buys it there’s a lot of cash they need to drop to insure that the actual value of Yahoo remains – and that’s the brain trust.  That’s expensive.  Really expensive.

Yahoo itself is of little worth.  As a portal they’ve eclipsed their halcyon days of yore and have been no longer the "in place" since 2000.  As a search engine they probably will be overshadowed by Microsoft within the next year or two.  But when paired properly they may be of use to someone.  So the real money for a savvy investor is to take the brains there and merge the knowledge with your own people to extend both of companies.  But as I said that takes money.

Brain trust is expensive and brain trust wants to know they have a future and brain trust wants to have their projects and ideas move forward so all of that is expensive.  That’s why I say, $33 was generous.  Which was basically what Balmer said last week when he said, "I know exactly what Yahoo is worth.".  It wasn’t an insult it was a statement of fact.  He knew exactly the number he was willing to pay to make it profitable to both sides. 

He also said something else that was worth noting if you were Jerry Yang.   He offered the following tongue-in-cheek statement, "I’m not known as a negotiator".  Which anyone in their right mind would take literally.  If you had half a brain and you were Jerry Yang your reaction to all of that should have been, "Hey, we’ve done the numbers on our side.  $31 was a good price, but we’re willing to go $33 – no higher or it’s just not the value to us.  We’re not here to haggle, we’re here to buy.".  Basically Balmer could not have telegraphed this any louder if he’d sent Yang a text message saying those very words. 

Yang however was also telegraphing his movements.  Essentially he did everything he possibly could to ignore the Microsoft offer – essentially offering to sell the company to anyone but Microsoft.  Other drama ensued orchestrated specifically to avoid being bought out.  Now, this made things hostile basically from day one. 

When faced with a hostile seller, who begins a sale with a haggle manuever.  Walk.  Don’t bother to counter the counter because all they’re going to do is waste your time and your money, and the best outcome of it will be you may buy it but it won’t be at the price you should pay.  So walk.  No one can make you over pay for something except you.

Microsoft has all the cards on this deal.  Yahoo… has all the debt.

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Posted by on May 6, 2008 in Uncategorized

 

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