Microsoft’s Yahoo bid ends well — for Google

17 May 2008

David Crow says personal animosities played a major part in the failed merger of Microsoft and Yahoo — to the benefit of their most potent online competitor

Microsoft could also just sit out for a while. Ballmer can take comfort from the fact that Yang’s woes are far worse than his own; it really is hard to imagine a lamer duck. Few doubt that the Yahoo chief put personal sentiment before shareholder interest. Nor does anyone really believe Yang will be able to show that his firm is worth substantially more than Microsoft’s $33-a-share offer any time soon; the last time Yahoo’s shares were worth the $37 Yang was holding out for was in January 2006. If the stock continues to underperform, Ballmer could pick it up cheaper further down the line.

As long as Yang is calling the shots, however, Microsoft is unlikely to secure a final deal. Although speculation is rife that the two parties will be back at the table before the chairs go cold, it is most likely just hype. Meanwhile, angry shareholders are calling for Yang’s resignation and Yahoo is facing several lawsuits, while activists are busy buying stock to enable them to boot the board out at the annual meeting in early July. Either way, it looks increasingly unlikely that Yang will be in his job at the end of the year. In the short term, he’ll probably try to cement the agreement with Google, a move that could drive $1 billion to Yahoo’s bottom line — earning a reprieve, perhaps, but not a pardon. The trouble is that without Microsoft around, Google might be much less interested.

As for winners, there’s only one: Google. Already accounting for 56 per cent of US online searches and 80 per cent of Western Europe’s, Google is now perfectly poised to chip away at the dwindling market shares of Yahoo and Microsoft. Eric Schmidt must have looked on last week’s events with gleeful disbelief. By failing to agree on a merger in the last three months, his two biggest competitors have done more to cement Google’s dominant position than it could possibly have done for itself. Despite Ballmer’s labours, his failure to secure the all-important love match at the right price means Yahoo and Microsoft have well and truly lost.