Microsoft, Yahoo! Keep Playing Chicken
04/28/08 - 02:10 PM EDT
Pia Sarkar
SAN FRANCISCO -- Investors and analysts are now waiting for Microsoft(MSFT Quote - Cramer on MSFT - Stock Picks) to drop the other shoe.
The company had indicated last Thursday that it would disclose early this week its next move in pursuit of a merger with Yahoo!(YHOO Quote - Cramer on YHOO - Stock Picks). Yahoo! has apparently allowed a Saturday deadline to accept or negotiate Microsoft's $31-a-share offer to pass quietly. Microsoft recently gave plenty of clues that if Yahoo! didn't accept, it would either go it alone, or announce a hostile proxy action to secure its rival for search-advertising market share. "Microsoft is likely to back off for now," says Roger Kay, a stock analyst with Endpoint Technologies Associates. "I don't think they are going to raise the bid. If they back off and Yahoo!'s stock price tanks, Microsoft is free to come back in and offer a lower price, demonstrating that it was the bid that was keeping the price higher -- not Yahoo!'s assertion that it was because of locked future value." Cowen analyst James Friedland says Microsoft's deadline was just another part of the negotiating process. "This is a game of chicken," he says. "To its credit, Yahoo! is hanging in tough, but their alternatives are not very attractive." Friedland says if the deal collapses, Yahoo!'s price will likely plummet. Yahoo!'s stock was up 13 cents, or 0.5%, to $26.93 in recent trading. Microsoft shares were down 71 cents, or 2.4%, to $29.12. Yahoo! shares had closed just above $19 the day before Microsoft's offer. For its part, Yahoo! isn't worried about a fight over control of its board, because the company "has a fair degree of confidence that it has a strong block of votes in the [event] of a proxy battle," Kay says. A proxy fight "would be nastier and uglier and down to the minute."
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