Filed under: Deals, Competitive strategy, Google (GOOG), Microsoft (MSFT), Yahoo! (YHOO)
Microsoft (NASDAQ: MSFT) has issued an ultimatum to Yahoo! (NASDAQ: YHOO)’s board of directors and senior management that they have until April 26 to approve Microsoft’s $41+ billion price tag or Microsoft will take it to the shareholders directly. This would amount to an unmitigated disaster. Tell me the last time a nasty takeover went well in the technology world. You can’t because these things don’t happen or work. I’d superior explain.
In the world of takeovers, the sweetest scenario is to have the acquired happily march the employees right into the new firm. With industrial takeovers, the acquiring company is buying the physical assets and any intellectual property that exists within the acquired firm. With those assets and intellectual property comes an even more valuable list — the customer list and relationships. In the tech world, however, a takeover operates quite differently.
The technology world fosters an environment of independence and delicate egos abound. Key personnel from Yahoo! are not going to sit idly by while Microsoft tenders directly to the shareholders in an aggressive fashion. These key people will have retained recruiters, if they haven’t already, and will be on to the next opportunities. By the way, Google (NASDAQ: GOOG) is hiring!
Technology is an intellectual property- and marketing-dominated business. If Microsoft were to be successful with Yahoo! shareholders, I would venture to state that at least 60-70% of the “key employees” will be long gone or soon to depart after immediately exercising vested stock options. The cultural chasms between Seattle and Sunnyvale just doesn’t cut it.
Yahoo! knows that Microsoft is desperate to effectively compete versus Google. In the tech world the old adage holds true — if you can’t build it, you must buy it. Microsoft has shown it’s not capable of competing with Google straight up. With an enthusiastic Yahoo! group in the door, it stands a fighting chance. With a fractured Yahoo! group half-way in the door, half-way out, Microsoft will spend the first 18 months after the close trying to figure out who is staying and who is leaving; who needs to be placated and who needs to be sent packing. All the while, Google will distance itself even further away from the pack.
Nasty proxy fights might win out in the industrial world, but in tech land — no way.
Georges Yared writes about great growth stocks in Game On Investing.
Fellow BloggingStocks contributor, Aaron Katsman, and I were discussing the pros and cons of investing in high-yield bonds this morning. You know, those types of risky bonds that pay a pretty good yield in return for investors lending a risky company their hard-earned cash. Inevitably, Washington Mutual’s name came up. 
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