Stanton Champion

Microsoft has walked from the Yahoo! deal. Michael Arrington has a good rundown on what to expect this week for Yahoo!, but here’s a summary: they’re screwed.

This deal was always the equivalent of Microsoft throwing an armed hand grenade into a crowded room. Everyone knew the grenade was about the go off, but nobody had a clue when it would happen. Would the deal get done at too low a price, forcing Yahoo’s shareholders to sue everyone in sight? Would MS go hostile, costing them and Yahoo lots of time and money? I said in a previous post that there was a huge possibility that key talent would run for the doors leaving Microsoft with nothing for their trouble. Nobody liked this merger, but once the events were set in motion the outcome was inevitably bad for everyone.

Since nothing good would have come for Microsoft from this merger (SAI just started a series titled Why Yahoo-Microsoft Will Be a Disaster), walking from the deal is probably a win for them. On the other hand, this is the the worst outcome for Yahoo!. Shareholders have been angry at their bad performance for years, and many believed this was the only way to get any kind of value out of the company. On Monday, expect the Yahoo! stock price to plummet while Microsoft’s will rise. Oh, and expect a bounty of lawsuits aimed at the Yahoo! board by angry shareholders. Yahoo! turned in a good Q1, but many believed that was smoke and mirrors. If they can’t show continuing improvement, expect even more hell to break loose later in the year.

On the other hand, this could be a new beginning for Yahoo!. Many companies have been tested by failed mergers and come out stronger, like Goodyear in the 80s. But today the Microsoft hand grenade has finally gone off and Yahoo! has a lot of cleanup ahead.