If Microsoft had won the Yahoo deal, it would have automatically gained market share in the lucrative online advertising market. No bad thing considering that Microsoft estimates the online search and advertising market will be worth an estimated $80 billion by 2010.
But Microsoft has now withdrawn its offer completely. It has placed pressure on Yahoo to prove to its shareholders that it can raise its share price on its own.
And the benchmark has been set. Yahoo said Microsoft had undervalued its stock and asked for $37 a share – $6 above Microsoft’s original offer, which was a 62 per cent premium above the closing price of Yahoo on Jan 31 2008.
Microsoft took its offer up to $33, but Yahoo didn’t budge on $37.
By refusing to take Microsoft’s offer on the basis that it undervalues the company, Yahoo has indirectly admitted that it is not performing as well as it could be, since its current share price stands at $24.37.
Given that Yahoo’s stock dropped 15 per cent this Monday on the announcement of Microsoft walking away, it will have to pull some fairly innovative products out its quite lacklustre bag of online offerings, at a time when economic conditions aren’t exactly rosy, to reach the jump to $37.
And again, if Yahoo fails to deliver a $37 share price, Microsoft could re-enter the arena with a lower bid and still take control.
Like I said, whichever way this still plays out, it’s a win-win for Microsoft.