The experience of an international student

Now the Microsoft Yahoo drama is in a deadlock. A guy with $44 billion can't seal the deal, shame on Steve Ballmer. But what could he have done to make things work? Here's the plan I suggested for Microsoft.

Earlier this semester when Yahoo rejected Microsoft's $44 billion offer the first time, our M&A class professor Levitin asked for our opinion. I said I have a plan for Microsoft. Since Yahoo said the offer was too low, MS could raise the offer a little bit, like $3-4 billion (Prof. Levitin laughed, saying:" I like this ‘a little bit'. When I was the CFO, the largest deals are in millions. Now several billions is just a little bit."). Yahoo would most likely reject again. Then MS withdraw the offer, wait for another half year to one year, and come back with the same offer or even lower. Yahoo wouldn't go anywhere in a year, so the shareholders would be angry at Jerry Yang, and they would put more pressure on him to sell when MS come back. Then the deal would have much better chance to go through. Levitin suggested me to put this plan in a blog or something, but I was still too busy then to resume blogging. Anyway that's the first chance MS could adopt a different strategy.

Then there came the ultimatum and the threat of lowering price and hostile take over. Here's its second chance to do something more clever. One analyst criticized this new move and said MS should raise the price by $1/share, then issue the ultimatum, not keeping the same price. I think the analyst has a sharp understanding of the psychological dynamics here, and I agree with him/her. But Ballmer chose to bully Jerry Yang instead, and eventually put himself in an awkward position.

So what's the logic behind these suggestions? The first one is easy to understand. Actually somebody just practiced it not long ago. It was the founder of Atlanta-based Post Properties (I lived in one of its apartment complexes before coming to USC, very nice and very cheap compared to LA, $800 for 2 bed/2 bath, gated property with jogging trail). He was ousted by the board a year ago, tried to buy it back but failed. Then there came the housing meltdown and Post stock tumbled, and investors were very angry at the board for not accepting his offer before. He came back recently and offered to buy it back at a much lower price, and the board was seriously considering the deal. This kind of case also resonates well with the old oriental wisdom of "the slower could be actually faster, the longer path could be actually shorter, the weaker could be actually stronger", etc.

The second suggestion has a more sophisticated reasoning behind it. It is based on the psychological analysis of Jerry Yang and Yahoo. But I need to do some study now, so I'll continue with the fun part tomorrow.