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May 12, 2008

Analysis of a non-deal

New York Times' Andrew Ross Sorkin has an analysis of Steve Ballmer's missteps in bidding for Yahoo.
..most of all, Mr. Ballmer didn’t realize — though he had been warned by his advisers — that when you make a blockbuster unsolicited offer, you must be prepared to win. Not necessarily win at any cost, but win at a cost within reason. (Just ask Rupert Murdoch.) And the truth is, the few extra bucks that Yahoo wanted in order to save face was within Microsoft’s ability to pay without wrecking the economics of the deal.

...Mr. Ballmer made things worse by lashing out at the company he was wooing. He contended that “public indicators suggest that Yahoo’s search and page view shares have declined.” He threatened to go on the attack, but never did.

...Perhaps the biggest problem in this deal was that neither Microsoft nor Yahoo heeded Wall Street’s advice or listened to what the market was saying. Each company hired armies of bankers — Bear Stearns, Blackstone Group and Morgan Stanley for Microsoft; Goldman Sachs, Lehman Brothers and Moelis & Company for Yahoo — but neither really paid attention to what their advisers told them. Say what you want about bankers, but they at least are good at parroting the markets. At one meeting in Portland between both companies, a Yahoo executive dismissed his company’s bankers as “potted plants” — in front of them.

Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of information and networking services to the private equity and venture capital ecosystem in India. View free samples of Venture Intelligence newsletters and reports.