My views on Microsoft and Yahoo

Today the news came out that Microsoft is pulling their $40+ billion dollar offer for Yahoo. When I first read the story I couldn't help but think, "What are these guys thinking?" I believe Jerry Yang will forever be remembered for not accepting this generous offer. Too bad that one of the greatest entreprenuers of our generation is going to be remembered for something so negative.

Having started a few very successful companies myself, I sympathize with Jerry. Sometimes it's hard to let go of a business that is so much a part of you as Yahoo is to him. Unfortunately, often the guys who come up with the great ideas are not always the best guys to run the business, especially something the size of Yahoo.

From the stock standpoint, I think he blew a great opportunity to get an amazingly fair deal for the Yahoo shareholders. The number he and his board had in mind for the company was obviously a much greater number than the market valued Yahoo. Personally, I trust the market to set the value of a company and that's just what it did today with Yahoo shares. If the company is really worth $37 per share, why is it trading for $24?

I always wondered who came up with the concept of paying a huge premium over the current market price to buy a company. Yahoo just tried to play that game and lost.

Now Mr. Yang is faced with the challenge of building the company up in the eyes of the market to a value greater than the offer that was withdrawn by Microsoft. That's a tall order given the current state of the company and the market. I sure wouldn't want that expectation staring me in the face every day I came to work.

Personally, he also missed a huge opportunity to turn a new page in his life. To walk away on the top of the mountain with a ton of money and respect to build his next deal with. Now he may end up with less of both.

So here's my prediction. There are no better offers out there that will get the value they just passed up on this deal. In a few months when that become obvious the the Yahoo board and Mr. Yang, will be begging Microsoft to buy them at a lower price than the one they just passed on. We might have just witnessed one of the biggest corporate blunders of all time. Time will tell.