Jerry Yang has to be the worst CEO in the history of capitalism. Today his chosen partner, Google (GOOG) announced that it was walking away from the joint venture with Yahoo (YHOO) that would have seen the company place advertising on the giant internet portal.
So what happened to the concessions in the deal that were made only yesterday in hopes of securing regulatory approval? Dead on arrival, I guess.
Seriously, what was YHOO thinking? There was no way a deal between the two largest players in search would not be viewed as anything but competitive. Sure it puts dollars in their pocket, but only at the expense of competition.
It’s not going to happen. Recognizing this, GOOG walked. They are in no need to do a deal with YHOO. They can put Yahoo out of business in my opinion. Why waste tons of money and political capital in pursuing a deal that was likely to be denied anyway.
Shame on Google for thinking this was a good idea.
So now what in the world is YHOO going to do. There are powerful long positions that will demand that the company be sold. Unfortunately the landscape of potential buyers has only gotten smaller.
Microsoft (MSFT) is on record as stating that they are no longer interested in the company. GOOG is now off the table and Fox or AOL does not appear to be in a position to help.
Can MSFT be convinced to buy YHOO?
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The longs better hope so.
In reaction to the news, the rumors of a deal with MSFT exploded like wildfire. It was a natural reaction. What else is YHOO going to do in this situation?
Shares of YHOO jumped by more than 11% on the news of GOOG cutting ties and MSFT reentering the fray. The rumors are false according to both companies. Apparently the story had good old Jerry Yang resigning and MSFT buying the company for $17 to $19 per share.
Wishful thinking for the longs, but why on earth would MSFT jump in now? They won’t when doing so makes no sense. Why not just wait until YHOO implodes?
Implosion appears to be the natural conclusion to this sad story. In addition to poor management weakness in the economy reduces the value of YHOO’s business. Now as a foe GOOG is likely to pounce on YHOO’s weakness.
Without a buyer in sight, YHOO‘s value deteriorates even further. It is clear to me that their survival is in question. That’s why I suggested here that YHOO could lose half its value from already depressed levels.
MSFT very well may buy the company, but they are in a huge position of strength. They will cut the very best deal possible and that will be when YHOO is trading in the single digits.
That said, shorting YHOO runs the risk of dealing with false rumors as we saw today. Be careful, but clearly YHOO is in deep trouble here.
This article was written by Jamie Dlugosch, contributor to InvestorPlace.com. For more actionable insight like this, go to: www.InvestorPlace.com.
