Count the Sources on Microsoft's Next Steps

Boy did The Business Press Maven have a good idea for today's column. A report in The Wall Street Journal emerged on Saturday that Yahoo!(YHOO Quote - Cramer on YHOO - Stock Picks) would reject Microsoft's(MSFT Quote - Cramer on MSFT - Stock Picks) $45 billion takeover offer. The Journal's report was itself the subject of an immediate torrent of reports. In the resulting echo chamber, there lurked danger.

There are many advantages to today's media landscape of so many outlets and such voluminous reams of commentary. But a big disadvantage is that any high-profile utterance, regardless of its relative merits, always risks being solidified into conventional wisdom instantly by immediate and continual repetition. One article claiming an impending rejection of a takeover bid might be sourced on a wing and a prayer and treated appropriately. But hear the report repeated on a constant loop and, well, instant credibility.

But if there is one thing I hate, it's when reality intrudes on what seemed a pre-prepared story line.

The initial report in The Wall Street Journal appeared to have a legitimate source. The New York Times followed up later that Saturday with a report referring to more than one apparently well-placed source. That is an indication of more than hot air:

"Yahoo's board plans to reject Microsoft's $44.6 billion hostile bid in a letter on Monday, saying the offer undervalues Yahoo, people involved in the discussions said Saturday."

When the source count starts to rise as time winds on, it's generally an excellent sign that what is being spoken about is true. In its summary, TheStreet.com did right in telling the story of the reports of the possible rejection by getting out their fingers and toes and counting the sources:

"Yahoo!'s board decided that the $31-a-share offer "massively undervalues" Yahoo!, according to a report published on The Wall Street Journal's Web site Saturday that cited one person familiar with the situation ... The New York Times later published a story citing multiple sources involved in Yahoo!'s discussions confirming the rejection plans."

"Source analysis" is obviously more art than science, but with so much chatter about deal hook-ups or deals breaking down, it is essential than instead of following every last strand of excitable talk, you try to analyze, artistically, the quality and depth of the anonymous sources that spurred the continual talk.

Now the fun part. Since this letter is no figment of the business media's collective imagination, having materialized at Microsoft headquarters today, postmarked from Yahoo!, what can we look forward to next? Rank speculation!

The business media has been weighing in, and this is an area where it is impossible to be proven wrong, at least immediately. But let's highlight a few of the better, more likely thoughts. The Journal does a good job of sketching out Microsoft's bind, in the face of the rejection. These things, according to the Journal, and to borrow from the Wicked Witch of the West, must be done delicately:

"Microsoft may sweeten its offer, say people familiar with the matter. But any increase is likely to fall short of what Yahoo's directors believe would fairly value the company, the people say, setting the stage for a protracted battle...

"People close to Microsoft say the software giant is reluctant to launch a proxy fight to push out Yahoo's board. A fight could increase the odds that key Yahoo employees will leave the company, these people say. It is more likely to pursue less-hostile options, such as recruiting big shareholders to put pressure on Yahoo to negotiate with Microsoft for an acceptable price."

The Times of London makes the less likely case that Yahoo! will goad Time Warner's(TWX Quote - Cramer on TWX - Stock Picks) AOL into some form of involvement. Note here, speaking of sourcing, that all we get in the lead is the passive construction: "has learnt." Raising the essential question: from whom?

"Yahoo! is seeking to restart merger talks with AOL as a means of defending itself against the $45 billion (£23 billion) hostile bid approach from Microsoft, The Times has learnt."

We then get a hint, but it sounds nothing better than investment bankers throwing around scenarios, which is basically what they do all day when they are not billing:

"It is understood that Yahoo! and its team of advisers from Goldman Sachs and Lehman Brothers, the US investment banks, have spent the past week evaluating possible tie-ups with media and technology firms that would save it from being swallowed by Microsoft."

Let's end our look forward today with The New York Post's take. Remember, the Post ran early and often with talk of the MicrooHoo deal in the first place, articles The Business Press Maven (in retrospect) wrongly took to task. Here, you can forget the Journal's talk of delicacy. The Post's sources tell them that Microsoft is pissed with a capital 'P' and will go forward with a hostility, using all the subtlety of a claw hammer.

"Sources told The Post that, in the past, Ballmer has been most annoyed by Yahoo!'s refusal to even engage in a dialogue with his company, and if today's letter again gives that impression his response will likely be to go hostile."

Stay tuned. And take off your shoes and socks, if need be, to count those sources. There will be a lot of anonymous speculation before this one is settled.