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If you read between the lines of the statements from Yahoo and Microsoft today about the definitive end of their acquisition talks, it's clear that Jerry Yang learned something from Steve Ballmer during their months-long, failed courtship: walking away first gives you the power.
It's just too bad the lesson won't help Yang save Yahoo in the long run. As we've said before, Yahoo's days as a stand-alone company in its current form are numbered.
Click here for our full coverage on the Microsoft bid for Yahoo.
As for the negotiation lesson: Ballmer walked away first, a month ago, when he said that he was no longer interested in acquiring Yahoo. That put Yang and company in scramble mode and exposed him to attacks by angry shareholders and one famous gadfly investor.
Ballmer then stuck to his guns, based on Yahoo's latest statement, which said that Microsoft was no longer interested in a deal -- even one priced at or near the $33 a share level Microsoft had previously offered.
That part of the statement was no doubt written in for the sake of Yahoo's lawyers, who are busy defending the company from a raft of shareholder lawsuits, and for Yahoo investors, who will soon be asked to vote on a new board slate put forth by corporate raider Carl Icahn.
Icahn wants new leadership at Yahoo and has said the company erred in not taking Microsoft's earlier offer. In advance of the company's shareholder meeting, Yang and the board need to convince shareholders that they did everything they could to try and salvage a deal, and sharing info on the negotiations is part of that effort.
But what's most interesting today is that after Yahoo issued its statement, Microsoft countered with one of its own, repeating that it no longer has interest in all of Yahoo but also saying it was still interested in a smaller transaction.
That deal would be buying Yahoo's search business, according to Yahoo's letter, and this is where Yang learned something. By keeping Microsoft interested long enough, he may have been able to squeeze better terms out of Google for the search ad deal their expected to announce.
For Google, which has been pummeling Yahoo for years in the paid-search business, the most powerful motivation for a search partnership with Yahoo has always been a defensive one. It will keep Microsoft from getting hold of Yahoo's search traffic and make it nearly impossible for Microsoft to ever get any traction in search. Not that the software giant was making much progress up until this point.
For Yahoo shareholders, though, even if Yang did play the search negotiations better than the all-out acquisition talks, that's cold comfort.
Yahoo is now nothing more than picked-over goods in the M&A market, because any strategic buyer who had an interest in an outright acquisition had their chance over the last few months to step forward and outbid Microsoft. No one did, because no one wanted the rest of Yahoo as badly as Ballmer wanted its search business.
Now, Yahoo is about to outsource the business that Yang was brought back as CEO to fix. That was back when Yang said Yahoo's challenge was a technical one. Perhaps catching Google proved too technical, because after two years and a few hundred million in R&D, that effort was such a failure that Yahoo is now ready to turn to its longtime rival to improve its search business.
With Yahoo teaming up with Google, Steve Ballmer's only interest in Yahoo will be to employ all of Microsoft's lobbying strength to try to get the deal scuttled by anti-trust regulators.
So what does Yahoo have in the absence of search? Optimists can argue that the company owns the most-visited Web sites in the world in at least seven categories and still attracts more than half a billion unique visitors per month.
That should be worth something, if Yahoo can do a better job in its display advertising business than it has in the past, when it disappointed Wall Street in several quarterly reports after missing its numbers.
Despite Yahoo's assets, however, there is far more fodder for the pessimists.
The company is bleeding top talent, with more leaving today. It's distracted by the shareholder lawsuits and Icahn's corporate raiding. And, in the online display market, it is heavily exposed to the financial and auto sectors, two industries that are in major retrenchment mode.
Is it any wonder Yahoo's shares took another dive today?
In the short-term, if Yang and the board can survive Icahn and the lawsuits, and boost cash flow from the Google search deal, they may get a little breathing room.
But my bet is that won't last, because no matter how hard Yahoo tries to compete in the display ad business, it faces a serious disadvantage against both Google and Microsoft. Both of those companies have much deeper pockets, and they snapped up DoubleClick and aQuantive, respectively, the two largest ad exchanges, while Yahoo had to settle for the smaller combination of 24/7 Real Media and RightMedia.
At the same time, new vertical ad exchanges keep popping up every day, taking away valuable business for ads targeted at premium content sites.
Even Yahoo's long-time lead in several online content categories is under assault, as much larger and more-established media companies like CBS, Disney and News Corp. spend heavily to boost their audiences.
In summary, in every market it's in, Yahoo faces an uphill battle, while it's led by a wounded management team that sees more and more executives leaving every day. Given its prominent role as a Web pioneer, it will be sad to see it go.
Icahn might be Yahoo's best hope, given his reputation for reshaping companies. But his record is mixed of late, and the distraction of continued court battles over Yahoo's controversial poison-pill plan will would Yahoo further and prompt the exodus of still more talent.
Sometime within the next year or two, as its stock languishes in the teens, Yahoo will be acquired , either by a media company or Microsoft, depending on the terms of the Google search deal, and for an amount significantly less than Microsoft was willing to pay just last month.
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