D-Day + 1 Week :: Lose-Lose

Well, I must admit that I'm surprised by the outcome, but Microsoft has decided to withdraw its buyout offer for Yahoo! after a fight over, you guessed it, price. Here's a short excerpt:

Microsoft said it offered to raise its $44.6 billion bid by about $5 billion, to $33 a share. Yahoo demanded $37, Microsoft said yesterday in a statement.

After careful consideration, we believe the economics demanded by Yahoo do not make sense for us, and it is in the best interests of Microsoft stockholders, employees and other stakeholders to withdraw our proposal,'' Ballmer said in the statement.

I think that this is a copout - at least to some extent - on the part of Ballmer. He went out on a limb and got burned. He made bold statements that left him with few alternatives and made Microsoft's decision just that much more difficult.

It's probably one of the first things you learn in any strategy or negotiations class: Don't state your position until you clearly understand your counterpart's position. Sure, it's not always easy, but the underlying principle is simple; you can ensure that your position, once stated, accommodates the goals of the other party such that accepting your proposal can be seen as both a fair and equitable compromise. What Ballmer did was foolish - he drew a line in the sand and left himself very little room to negotiate further.

Yahoo!'s management, on the other side of the table, certainly appear to have made a selfish decision - choosing to protect their own job security rather than serving to the needs of their shareholders and stakeholders. The stock will drop between 20 and 30% tomorrow morning when the markets reopen - that's gotta hurt!

UPDATE (The following morning): Yahoo! down 21% before the market open... Microsoft, actually up a few cents...