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Monday, February 11, 2008

So - yahoo declined MSFT's offer. Unbelievable. Yahoo is currently trading at a PE ratio of 62 - Microsoft's offer is very fair and I see only two reasons why Yahoo would decline the offer:

1) Greed.
2) A desire to remain independent.

Either way - if I were in MSFT's shoes I would back off. Yahoo is a people acquisition even more then a brand acquisition. If the people are only interested in money or independence then they will probably:

1) Not be at Microsoft very long.
2) Not work well as a team with MSFT people.

If I were a shareholder I would be furious. Yahoo is losing market share. Declining offers from the only legitimate buyer is not too smart. People are talking about a Yahoo Google partnership, but I doubt such a partnership would get past regulators. If it did, it would be a poor long term move for Yahoo. If this is a negotiation tactic I think it is shockingly poor - and extremely dangerous. MSFT's only good play is to back off - IMHO.

Take the 50 billion and buy Digg, Facebook, MySpace, Photobucket, etc...etc... Better yet, let investors go nuts and sue the board. Increase efforts to poach Yahoo people. See where the stock is at a year or two down the line. A lot of people will have left (to MSFT or Google), and they could probably buy the brands for a steal.

50 billion is a lot of money for a company that does not want to work with you.

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