He's Back! Did Balmer Just Scuttle Yahoo/AOL Talks?

Not to be boring but, we told you so. When Microsoft announced its stock repurchase program many folks thought it signaled an end to Redmond’s interest in Yahoo. We speculated it was a move designed to hammer Yahoo stock so that MS could buy Yahoo at a greatly reduced price.
Since the MS repurchase announcement, Yahoo stock has fallen below $12 a share. With Balmer’s announcement today that Redmond may still be interested in a deal, Yahoo stock rebounded, indicating that the stock might have been supported by investor hopes that a Microsoft/Yahoo deal may still be struck.
Balmer is toying with Yang.
As we stated weeks ago, these maneuvers are just hardball negotiations and Jerry Yang holds a weaker hand. The timing of Balmer’s statement today is perfect and designed to create maximum chaos inside Yahoo and the upcoming board meeting. But it also has another purpose.
Microsoft would like to buy Yahoo but at a reduced price and Balmer doesn’t want this deal to get away, but the real issue is – will Yahoo still be in play?
Yang has been negotiating hard and fast with AOL in hopes of closing a deal and possibly keeping his job. But Balmer knows that a Yahoo/AOL merger would kill any chance for Microsoft to purchase Yahoo. The Feds would never allow Redmond to buy the newly merged companies. And MS wouldn’t want to. They want Yahoo search not the AOL communities sinking ship.
In announcing his possible interest in continuing purchase talks, Balmer just derailed any chance Yang had of buying AOL, at least until Balmer gets his shot at the deal. If the Yahoo board is faced with the choice of buying a dying Internet company and conducting a turn-around of BOTH companies, or merging with Microsoft, it’s a safe bet which way Icahn and pals will vote.
The Yahoo/AOL deal was probably derailed and Microsoft came back into position #1 with the turn of a sound bite from Redmond. Of course, the conspiracy theorist in me likes to imagine some late night strategy call between Balmer and Icahn that led to this. It can happen when you have a disgruntled board member.
Yang is painted into a tough corner. His AOL talks will probably be tabled because Icahn will certainly demand restarting negotiations with Microsoft before any AOL deal is struck. With a slumping stock, a questionable upcoming quarterly report and an unhappy board, time is not on Yang’s side. If he can actually wiggle out of this, maybe Jerry deserves to be Yahoo CEO.









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