Microsoft / Yahoo — When Negotiations Go Bad

New Microsoft Yahoo Logo
New Microsoft Yahoo Logo

It’s sorta old news at this point in time, but Microsoft’s offer to buy Yahoo fell through. What’s interesting about this from an Accidental Negotiator point-of-view is that it offers a number of important lessons for us mere mortals who only occasionally get to practice negotiating.

First we need to set the stage. According to Yahoo sources, here’s how things went:

  • Microsoft showed up with a $31/share offer to buy Yahoo.
  • Yahoo said no thanks — we’re worth $40/share.
  • Microsoft stayed fixed at $31.
  • Yahoo came back at $38.
  • Microsoft stayed firm at $31.
  • Yahoo came back at $37.
  • Microsoft came up to $33
  • Yahoo would not budge at $37
  • Microsoft walked away.

Nothing is ever this simple, but price was clearly one of the key sticking points of the negotiations. This tells us that at $37/share, Microsoft decided that their BATNA (Best Alternative To A Negotiated Agreement) was better. What is not quite so clear is that there were a number of handicaps that were restricting the negotiations for both sides:

  • Steve Ballmer (Microsoft) could still follow through on his threat to do away with formalities and circumvent the Yahoo board with the promised proxy tactic.
  • Microsoft has to make sure to keep its behavior in check throughout this process lest its image as a monopoly that crushes everything in its path be confirmed.
  • Yahoo has to be careful that its shareholders not be left with the feeling that because of a Jerry Yang/Steve Ballmer personality conflict they were robbed of a significant payback on their investment in Yahoo stock.
  • Yahoo has to think about their employees — since there is such a us vs. them mentality when it comes to Microsoft, what would happen if Microsoft did buy Yahoo — would any of that valuable intellectual property be left?

Nothing is ever as it seems and clearly both sides did not do all of the homework that was required before starting these negotiations. If they had, the discussions would have been done at the negotiating table and not in the flurry of press releases that were issued while the talks dragged on. Oh well, their loss is full of lessons for all of us.