After Microsoft's release of earnings.  I started to think about its hostile offer for Yahoo.  As I read a whole bunch of blogs about it, I found Henry Blodet's blog on Silicon Alley Insider the most interesting. 

People have been talking about Microsoft either walking raising its offering price, making a tender offer or walking away from the deal.  Any of these options are possibilities but what I found is most interesting is that this deal does not seem to have the vibe that it will get done.  Microsoft has, at least publicly, proceeded in an almost casual manner.  From my experience, the longer a deal takes to come to fruition, the less likely it will get done.  Over time, the critics to a deal have a greater ability to raise doubts about the deal and you start to hear from everyone in the peanut gallery.  For example, now we hear that Microsoft's employees are raising issues with this acquisition.  Not a good sign.

I have copied Henry Blodget's article below:

We now think it's more likely than not that Microsoft (MSFT) will withdraw its offer for Yahoo (YHOO) next week. This will likely send Yahoo's stock into the low $20s and Microsoft's up.

Here's why:

Microsoft's squishy quarter makes it less likely that Microsoft's rising stock will raise the value of Microsoft's bid on its own. (Ironically, of course, as the deal becomes less likely, Microsoft's stock will rise because of that--but we assume Yahoo is smart enough to know what would happen if it suddenly agreed to a deal.)

Yahoo has dug itself in deep enough that we don't see the company caving and agreeing to sell at this price--especially in the next two days. Jerry has demonstrated that he's not easily spooked, and he has to have been prepared for the possibility that Microsoft would walk. In fact, we think Jerry would see this as a victory (which it would be) even if many Yahoo shareholders do not.

We think lots of Microsoft shareholders and Microsoft employees hate this deal--as well they should, because it would be a disaster. We think the complaints and concerns about the deal expressed to Steve Ballmer over the past two months have probably made him think twice about the wisdom of fighting to the death for Yahoo, even if he'll never admit that. At the very least, they'll make it easier to walk way.

We think it will actually be harder for Microsoft to win a proxy fight at the current price that is commonly thought: At least 35% of Yahoo's stock is in the hands of folks who appear unwilling to sell without a price increase (Capital Group, Legg Mason, Jerry, David, and other insiders). If Microsoft is actually willing to raise its price, it should do so now--before launching a Pyrrhic battle that will last, at a minimum, 3-4 months, will distract and hurt both companies, and might fail.

Microsoft's public statements have now gone beyond threats to what appears to us to be acceptance and resignation. Maybe we're just falling for a negotiating tactic, but we don't think so. If Microsoft is going to seriously consider raising its bid next week--which, based on Yahoo's behavior, we think is now the only way to get this deal done quickly--it sure isn't acting like it. Cutting the price, meanwhile, would make it even harder for Microsoft to win a proxy battle.

Eight weeks ago, we thought this was pretty much a done deal. We thought the companies would find common ground around $35 and that an agreement would be reached relatively rapidly at that price, once Yahoo exhausted all its options. Now, based on the positions taken by both companies and the first quarter results, we think there's less than a 50% chance the deal will get done. At least in this go-round.

A few weeks ago, we went out for dinner at Yuki's Palette, which is located in Westbury, New York.  It is located in a strip mall which is never a good sign for a restaurant (unless the restaurant is in Sunnyvale, California).  As we went in, we noticed the lack of atmosphere.  So I started thinking that this restaurant was going to be a big mistake.  A bad sushi dinner can be a harrowing experience.  But when our friends arrived, they assured us that we did not make a mistake.

We naturally ordered the sushi and one order of Chicken Terriyaki.  We had the spicy tuna, the Mexican roll and the spicy crunchy tuna.  The sushi was excellent and could be one of the best in this area.  We were happily surprised on how good the Chicken Terriyaki was for a sushi restaurant.

In the end, we did not like the location or ambiance of Yuki's Palette.  But the food is the attraction at this restaurant and o this front, the restaurant delivers.

I am planning my daughter's Bat Mitzvah and I was shocked on the number of decisions that you need to make.  Little did I realize that you have to make decisions on things that I did not even notice were part of the celebration. 

Some of choices were obvious like the invitations and the DJ but others related to the types of stamps and the color of the tablecloths (let alone we rented our own tablecloths). 

As a result of the fun that I had in this process, I thought that I would share my experience to help those similarly situated.

Today, I am wanted to talk about the Yarmulkes.  We needed to find a Yarmulkes that was consistent with the theme of our party.  For us we started with the color Turquoise.  We then looked at the material and patterns.  I was then asked if I wanted clips for the Yarmulkes.  I do not even want to start with woman's head covers and whether they should have a comb built in.

The site that was the most helpful was kippah.com (http://kippah.com/).  They showed you the colors, patterns and had a convenient process flow.  Their pricing was competitive and their customer service people addressed all of our concerns. 

The only negative that I could see was that they have not built out the functionality to show you how the inscription will look once you type in the words.  But I did like the Hebrew keyboard functionality.

Rumor has it that Microsoft and Yahoo! are finally talking.  What could have caused this change in approach by Yahoo!  It could be that Jerry Yang has decided that the Microsoft could be in the best interest of shareholders.  Or it could be that Yahoo! is starting to see how its first quarter numbers are shaping up. 

If the numbers are below the street estimates then Jerry and the Board will take some major heat for not embracing the Microsoft offering (also some serious lawsuits).  In that case, management will lose even more of its credibility with the street.  Its share price will drop and Microsoft could reduce its offering and still have a chance to close the deal.  If this occurs, there will be no other options for Yahoo! but to take the offer.

To avoid that scenario, it is Yahoo! interest to negotiate before its numbers are finalized so that it can strike the best deal for its shareholders. 

If however Yahoo! has  blow out quarter then it makes sense for it to wait until their numbers are released to show that the Microsoft offer is too low.  By doing this they can either defeat the advances of Microsoft or get Microsoft to raise its offer by $5 or so billion dollars.

There is no love lost for Microsoft at the senior level of Yahoo! so I have to lean that financially Yahoo! is not doing as well as it expected.

When I was growing up, I had a dog named Charlie and a cat named Arthur.  They were members of our family.  We catered to what I thought was their every whim including having a place at the table for them.  When they died, we buried them in the Bide-A-Wee Cemetery in Westhampton.  At the time, I thought that was extravagant gesture by my parents but little did I know.  When I visited them last summer, I found out that our foot stone was the most understated monument there.  People built obelisks as tributes to their dearly departed.

This made me think that of how important animals can be to families.  Some families treat their animals as one of their members while others treat them as accessories.  As I researched this, I found that there are sites that cater to the pampering of animals. 

One of my favorites is Fresh Pets (http://www.freshpets.com), a recently launched site.   They sell a wide variety of pet products ranging from jewelry for pets to dogie sunglasses to spa products.  I do not know which products are over the top and which ones are just pampering.  But I have to believe that the sunglasses has crossed the line.

As to Fresh Pets' other products, I found their inventory extensive and reasonably priced.

I will continue to look for over the top products for pets.

As I predicted, Yahoo rejected Microsoft's hostile offer because the offer substantially undervalues Yahoo!  I wish that companies would be more honest with their rejections but everyone has to play the game.

The key question for Yahoo! is whether it wants a higher price, whether it wants to remain independent at all costs (a scorched earth approach) or whether it is looking for a partnership with someone like Google to avoid being acquired by Microsoft.  From what I remember, many Yahoos hate Microsoft with a passion and would consider being acquired by them as the ultimate in humiliation.  I do not think that just say no defense will work for Yahoo! so I would expect them to look for some strategic initiative which will buy some time for them.

For Microsoft, they will have to choose how to proceed in light of this rejection:

• Walk Away -- Microsoft could decide that they made their best offer and walk away.  I doubt that they will approach it this way since they have invested too much effort and have wanted to buy Yahoo! for several years.
• Proxy Contest  -- Microsoft could engage in a proxy contest to gain control of the Yahoo Board of Directors in the upcoming annual shareholder meeting.  Very hard to win a proxy contest especially when you are not a seasoned veteran in these contests. 
• Tender Offer -- Microsoft could take its offer directly to Yahoo's shareholders.  Most shareholders would be receptive to the premium that Microsoft is offering.  It is doubtful that Yahoo's share price would rise over 60% from its organic earnings (which it is based upon Microsoft offering) especially since its CEO said that they faced headwinds this year.  Absent the Microsoft offer, Yahoo! would be trading in the teens rather than close to $30 a share.  Add to that fact that a significant portion of Yahoo shareholders are now hedge funds looking for a quick profit, the shareholders seem to be lining up to be a receptive audience for Microsoft.  The problem with this is Yahoo has a poison pill which could stop the tender offer in its tracks.  More later on the likelihood that they would follow through on the poison pill.
• Negotiated Offer -- Microsoft could always raise their offer by $5 a share and exert pressure on Yahoo's Board to accept it.

I think that most likely scenario is Microsoft will first raise its offer but stoke Yahoo's fears with the threat of a tender offer.  I think that Yahoo's shareholders are very receptive to selling to Microsoft.  While Jerry Yang was right about Yahoo being worth a lot of money, the shareholders may not want to bet their investment on whether his strategy and execution will work.

The best outcome for shareholders would be that Yahoo! re-positions itself and starts the growth engine that it once was.  If they succeed in that, Yahoo's share price will end up being higher than the Microsoft offering price.  One of the key questions is how long for it to reach that level.

Next best outcome is take Microsoft's offer with its guaranteed price. 

The worse outcome occurs if Yahoo does not consummate this deal and Jerry and his management team are unable to follow through on their visions.  Yahoo! will continue to lose value.  This outcome is a disaster for shareholders.

In evaluating what is the best to do, we are faced with imperfect information similar to the old Prisoner's Dilemma.  In that economic scenario, prisoners are forced to make a choice absent perfect information. They do make a choice that they feel is their best alternative but it turns out that they choose a less than optimal outcome as a result of their lack of knowledge.  For Yahoo shareholders, they do not know how the Yahoo management team will perform (both on the strategy and execution side), so they should logically agree to the hostile offering (based upon the risk of management's failure).  This way, they will receive a good return will an extremely low risk of loss. 

On Saturday, we went out to dinner with another family to Genji Japanese Restaurant in Jericho, New York.  My kids love the food and whole experience.  We have eaten at Benihana, Hokkaido and Gasho and have had varying experiences at each.  Based upon the cuisine and then the show, we rank them as follows:

1.  Hokkaido
2.  Gasho
3.  Benihana

Genji was crowded when we showed up.  There were four hibachi tables in the main room downstairs.  Very noises but not smoky.  Our chef was really into the show.  He started with the typical fire routine which almost singed my hair.  He spun the egg for the fried rice like an expert.  I always love the beating heart routine.  He was also good at flipping the vegetables into our mouths.  The only trick he missed was the walking shrimp.

We ordered edamame, fried rice, steak, chicken and shrimp.  The soup and salad were tasty.  The edamame was salty as it should be.  The steak and shrimp were excellent.  The chicken was above average.  None of the food had an overage greasy taste that you usually get at Benihana from all the lard that they use.

With respect to the cost, it was slightly more expansive than the other Japanese Steakhouse but well worth it.

We found out that they hose kids birthday parties upstairs with the bonus of the room being set up for Karaoke.

The kids cleaned their plates which is a rarity in my family.  Any time they do that, the food must be good. 

So in the end, we were happy in our food and enjoyed the atmosphere.  The word of advice is that you do not need a whole dinner for each adult.  For a family of 4, you only need 3 entrées unless you are hearty eaters.

I have spent most of my time thinking about Microsoft's offer for Yahoo! from Yahoo!'s side but the other side of the coin is interesting as well.  Does this proposal make any sense for Microsoft?

I do not believe that this deal will sail through antitrust review either in the US or Europe especially with Microsoft's history towards antitrust behavior.  In addition, I think that Microsoft may run into an issue with their Hotmail and Yahoo! email products.  They may need to spin one of them off to obtain the requisite approval.

Also, I am highly skeptical that Mirosoft can integrate Yahoo! in a timely and efficient manner.  Most large acquisitions in the internet space do not work out.  A quick look at some of the larger acquisition failures includes:

• Yahoo! acquisition of Broadcast.com
• Google's acquisition of Youtube
• Microsoft acquisition of Hotmail
• eBay's acquisition of Skype
• CNET's acquisition of MySimon
• Excite@Home of BlueMountain.com
• Terra Networks acquisition of Lycos
• AOL's acquisition of Netscape
• Yahoo! acquisition of GeoCities
• @Home acquisition of Excite
• AOL acquisition of TimeWarner

There have been a few acquisitions in the internet space that have worked like Yahoo! acquisition of Overture, eBay's acquisition of PayPal and News Corp's acquisition of MySpace. 

That being said, if Microsoft does acquire Yahoo!, the merger of the two cultures will be a monumental task that will sap vital business focus during a time when Google will be continually improving its own products and services.  After two years of integration, Microsoft will finally be in the position to go after Google but by then Google will then own 90% of the market.  Too little too late.

As a result, Microsoft is in effect buying an asset that will be depreciating in its hands so regardless of whether the price is too high now, they will be overpaying since its value will continue to decline.

My friend raved about this Chinese restaurant in Bethpage.  He backed up his recommendation by informing me of the high rating on Zagat.  He did warn me about the atomsphere but as I am strictly a foodie, I did not care.  

On my visit, I agreed with my friend on the atomsphere but I strongly disagree on the quality of the food.  I am at a loss on why anyone would consider this the best Chinese food on Long Island.  I would not be surprised if this was not the best Chinese food on the block.  With respect to the atomsphere, the decor was bland and I heard that people have issues with the lobsters being stacked on top of each other. 

I ordered a Won Ton Soup, an Egg Roll, Fried Rice and Szechuan Chicken.  The Won Ton Soup was bland.  The Egg Roll was the high light of the meal as it was not greasy and it had great taste.  The Szechuan Chicken was gloppy and over cooked.  The fried rice was mushy.

On the whole, the food was below average.  My sole regret was visiting this place in the first place.

My hunt for the "Best Chinese on Long Island" will continue but I clearly can cross The Orient off my list.

I have been reading a whole lot of blogs and articles on Microsoft's bid for Yahoo.  People are speculating on why Microsoft is going after Yahoo! right now and will they succeed.  I would expect that the Yahoo! Board will evaluate Microsoft's proposal and inform them it is not in the best interest of shareholders since it does not represent the long term value of Yahoo!   With that statement, the negotiations will really begin.  Microsoft may have some antitrust issues arising from their respective email products.

Will another player come in and create a bidding war?  I think that the other candidates could include Google, traditional media companies, AT&T and eBay.

Google could outbid the current Microsoft offer and the addition of Yahoo! display advertising business would be a great fit in the Google product offering.   The problem for Google is the antitrust issues on the search advertising front.  Google could slice that off but without the underlying Yahoo! network, they are effectively killing that offering.  They will not get a whole lot of love from the government regulators either.  In some respects, Google may want to encourage Microsoft to buy Yahoo! since the integration of Yahoo! into Microsoft will be messy and should take years.  A distracted Microsoft/Yahoo! is the best outcome for Google.  By the time Microsoft/Yahoo! gets it act together, Google will own the search advertising business even more than it does today.

With respect to the traditional media companies, I do not think that there is a whole lot of appetite for the merger of old and new media after the AOL TimeWarner Merger.  In addition, Yahoo! would represent a significant portion of the combined company equity and they would be hard pressed to justify this acquisition.

On the AT&T front, the differing corporate culture would doom the combination from the start.  AT&T will know this challenge and even though they can afford, they will end up passing on it.

eBay would make sense strategic and they have had discussions in the past but the deal cost is too rich for eBay.  In effect, Yahoo! would end up taking over a majority of the combined company.

So why does Microsoft want to Yahoo?  I think that this deal is one of weakness.  Microsoft wants to compete against Google but does not have the search engine to do so.  They need a better search engine like Yahoo has Panama.  Also, Yahoo has a good display advertising business.  Also, Yahoo is a much better brand name than MSN.

I do not think that Microsoft will end up with a real competitor to Google.  With all the integration headaches, they are serving the search business up on a silver platter to Google.  The combined company of Microsoft/Yahoo will only have a third of the internet search market share as compared to Google's 60 percent share.  So the reason, Microsoft is making this offer is that it is third in search and losing market share on almost a daily basis.  Yahoo offers them a tremendous amount of traffic and some additional missing pieces with their internet business.

So what happens if Yahoo's board turns down Microsoft proposal?  Most likely, Microsoft will take their proposal directly to Yahoo!'s shareholders.  They have already laid the groundwork by highlighting the fact that Yahoo! has spent 2007 trying to revitalize the company and their competitive situation has not improved.  Clearly a message to the shareholders.  With over 437 million shares traded today, most of the Yahoo long term investors have sold to financial investors who are incented for this deal to go through.  As a result, the current shareholders will overwhelmingly approve this deal.

I will have some more thoughts as things develop.