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Lessons From the Microsoft – Yahoo Negotiations

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microhoo.jpgThe recently expired merger offer from Microsoft to Yahoo got me thinking about two things: what went wrong and what can we learn from it. On a lot of levels the merger makes a lot of sense. Microsoft needs to ramp up their search capabilities to compete with Google. Acquiring Yahoo would give them a boost in the right direction. There are a lot of other parts to Yahoo's business that would also help Microsoft's cause. So why isn't Microhoo up and battling against Google today?

Corporate Culture Clash

Nearly ten years ago, I worked for an Internet media/publishing company. We had a rival in the exact same space. It was Coke/Pepsi, McDonalds/Burger King. Each day we woke up and tried to think up with a way to get their readers. I'm sure they did they same for us. One day we woke up and something had changed... their company had acquired us.

How do you think this turned out? If you said disastrously, you'd get the gold star. We resented them. They had most of the high-level execs. Our social capital was destroyed - each employee had to prove themselves to a new boss. And then there was The Big Project... merging the two companies publishing systems. Each engineer knew that they were digging the grave of their job - each line of code written was a small shovel of dirt.

What is different about Yahoo and Microsoft? I don't see much as they've been corporate enemies for too long

Don't Get Greedy

Sometimes the best offer is the first offer. Yahoo reportedly thought that Microsoft would raise their first offer. Instead of taking the 40% gain and running with it, Yahoo wanted to stick it out for another 10%.

There's a big myth that you should never take the first offer. That's bovine excrement. If the first offer is a good one, then you should take it. I'm usually not a big fan of Microsoft, but in this instance they did what I would have done... come with the best offer.

Get it in writing

Yahoo said Microsoft never put it's $33/share offer in writing. I'm dumbfounded that people who run billion dollar corporations would let this stop them. How difficult is it for Yahoo to say, "That $33/share offer interests us. Could you put it writing and we'll have our people look it over?" I can't imagine anything easier.

Every now and again someone approaches me about some business opportunity related to this website. The person often want me to call them. I almost universally reject the invite to speak on the phone. I want a written record (even if it's e-mail) of any potential business deal. If she/he can't describe the proposal in an e-mail, it's not one I would be interested in.

In the end, I think Microsoft and Yahoo could work this out - the deal is not over. However, if they can't work together at this stage, it can't bode well for a potentially merged company.

Last updated on June 14, 2008.

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4 Responses to “Lessons From the Microsoft – Yahoo Negotiations”

  1. Matt says:

    I agree that this deal isn’t quite dead even if Microsoft has backed out of it. Though the two companies working well together might have been hurt drastically by the events that transpired.

    I think what this offer did was it put Yahoo on the market when they quite likely weren’t. Now other companies might consider acquiring them. If Google decided to they could place an offer for Yahoo and really hurt Microsoft’s chances for competing in this space (though I don’t know what the ramifications of that would end up being it would definitely be interesting)

  2. Getting it in writing is fast becoming the way people do everything, from business to personal stuff. It’s like everyone is out there covering their ass so they want to document everything they do or don’t do so they can’t get in trouble later on. I understand, but come on””emailing your boss at 1:23am so he/she can see how “late” you’re working is ludicrous.

    Unless your boss falls for it. Sorry it’s unrelated but I went on a microrant there.

  3. As a value investor I would not put more than $16/share for YHOO. But as a chart reader it is pretty bullish that YHOO stock did not fall to its pre-merger levels of high teens. I do think that MSFT might try buying into YHOO again.

  4. deepali says:

    Yahoo was never interested in being bought out by Microsoft…

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