Yahoo Shares Set To Plummet

Microsoft [[msft]] has decided to withdraw its bid for Yahoo [[yhoo]] as the price of $37 per share that Yang and the Yahoo board wanted was higher than the latest revised offer of $33 per share that Microsoft has made. This will probably lead to a blood bath in Yahoo shares on Monday as arbitragers who had bought the shares and expecting to sell them at $31+ will now have to exit their positions in a hurry. Since Yahoo is also traded on the Tokyo stock exchange, the first round of sales will happen there as the market opens on Monday. Even traders who opened positions in the US markets will be short selling on the Tokyo exchange to square their positions. After that, the next round of shorts will come in the pre-market session in the US, and finally when the US exchanges actually open, most of the action may already have taken place.

This could of course be just a negotiating tactic for Microsoft. Yahoo shareholders who see their shares plummet after Yahoo refused Microsoft’s offer will file lawsuits and put pressure on the Yahoo management. Furthermore, with share prices plummeting, Microsoft will be able to buy shares on the open market and possibly launch a hostile takeover at an even lower price. And then they’ll have many options if they still want Yahoo, use shareholder pressure/lawsuits to replace the board, or buy a big enough stake on the open market that allows them to replace the board themselves. In the meantime, the biggest winner will be Google [[goog]] who can take advantage of the distractions of these two companies to forge ahead with its own business.

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