Microsoft vs. Yahoo: First duel, then merge?

Microsoft signals hostile intentions, and Yahoo fights back. Yes, this is surely the way to beat Google.

Topics: Microsoft, Google,

Over the weekend Steve Ballmer, Microsoft’s CEO, brought out the big guns in his effort to strike Yahoo into oblivion … er, that is, acquire the company as part of a successful Internet venture. In a letter to Yahoo’s board, Ballmer charged Yahoo with failing to take seriously Microsoft’s offer to buy Yahoo for $31 per share.

Yahoo rejected that offer weeks ago, but in his letter Ballmer balked at raising it. Indeed, he threatened to take his case to Yahoo’s shareholders, and to pay less than $31: “If we are forced to take an offer directly to your shareholders, that action will have an undesirable impact on the value of your company from our perspective which will be reflected in the terms of our proposal.”

Today, Yahoo shot back with its own letter, one that says, more or less, “our rejection stands.” Yahoo adds:

We are confident that our stockholders understand that our independent Board is best positioned to objectively and knowledgeably evaluate our Company’s alternatives and to maximize value.

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Kara Swisher likens this fight to “Atonement” — a movie “starting to feel 20 minutes too long and without a clear ending, except for tears all around.”

She’s right; this doesn’t make any sense: Microsoft wants to force Yahoo into a happy marriage? Even when firms get together voluntarily, most mergers don’t work. Hostile mergers, born out of contempt and suspicion, would surely face a tougher struggle.

But now Microsoft’s backed itself into a corner. In his letter, Ballmer gives Yahoo three weeks to accept an offer, or else Microsoft will begin to rally shareholders against the Yahoo board.

The weeks will pass, Yahoo will dither, Microsoft will pound its chest, and Google — oh, those guys must be loving this!

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