New turn in the Microsoft/Yahoo! saga coming soon?

Microsoft’s attempt to purchase Yahoo! and the ensuing public moves and counter moves have been fascinating. It is a major milestone in the history of the Internet and witnessing it from within Yahoo! is very interesting.

The fact that all of this is happening in a very public way is indicative that the shareholders are an important piece of the puzzle. The tone and message sometimes remind me of two kids that are fighting.

We’re currently at the stage were Microsoft threatened to lower the bid and blamed Yahoo! for not even talking to them. Yahoo! denies this and says the offer is too low and that they are willing to talk.

And tomorrow Yahoo! will announce Q1 ’08 earnings. There are basically two possible outcomes:

  1. Results below expectations: Shareholders will get even more nervous and will push hard for accepting Microsoft’s bid. Microsoft can close the deal by increasing the bid slightly. This is preferable to lowering the bid which might have the same result but is more risky.
  2. Results in line or above expectations (with positive outlook): Shareholders are willing to give Yahoo! another chance and Microsoft will have to raise the bid and potentially go into a proxy-fight to push the acquisition through.

Given that Yahoo!’s senior management has been on a roadshow confirming the Q1 and 2008 forecast I would be surprised if earnings came in below expectations. This would totally ruin the management’s credibility.

I’m looking forward to tomorrow’s announcement and the after-hours market.  Microsoft’s next move will probably follow several days later. Valleywag determined the last possible date for a result in the case of a proxy fight to be mid-august.