MicroHoo: High Stakes Game Of “Chicken” Now In Progress

Yahoo’s generally solid quarter yesterday helps make the case that the company is worth more than the current value of Microsoft’s bid. In advance of the earnings call yesterday, however, Steve Ballmer said that the company was not prepared to offer any more than what it already had put on the table. Now today, in the wake of Yahoo’s earnings, he says he’s “prepared to move forward alone, without Yahoo.”

Yahoo’s position and actions, combined with Ballmer’s, make for a high-stakes game of “chicken.” Is Microsoft negotiating with a threat to walk away (of course)? But they also may be frustrated enough to do just that. And what is Yahoo doing: trying to play hard to get but expecting the deal will get done in the end?

The hardening of positions makes a deal appear somewhat less likely today than when the offer was first announced on February 1, 2008. Yahoo’s shares were then trading at just over $19. Today they’re at $28. Undoubtedly if Microsoft did walk away some or most of those gains would disappear. And then there would be the shareholder lawsuits.

In that context a deal remains a strong possibility, but not as certain as it once seemed.