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Microsoft CEO Steve Ballmer withdrew his company’s offer to purchase Yahoo yesterday, during a meeting with Yahoo CEO Jerry Yang.

I’ve said it before: Jerry Yang is in way over his head. Yang has not won a major victory here. If anything, Yang has given Microsoft time to create a better offer while he tries to craft and implement a strategy that ensures Yahoo’s continued independence.

It won’t be easy. As I’ve mentioned before, Yahoo’s best employees are leaving the company, and that trend is likely to continue. Neither Jerry Yang and his top aide, Yahoo presidentSue Decker, have ever run a large company before, as Steve Tobak and others have pointed out.

Yahoo needs a stable partner to ensure the company’s survival, if Yahoo management has indeed lost control of the company’s future. An alliance with Google would only make Yahoo seem less relevant. It’s much like an older sibling (Yahoo) who is surpassed by a younger sibling’s (Google)- but siblings usually aren’t traded on the stock market.

From Bloomberg:

Microsoft may come back with a new offer for Yahoo later, Heather Bellini, a UBS AG analyst, said before the decision. [Oracle], the third-biggest software maker, initially abandoned its bid for [BEA Systems]. after BEA asked for 24 percent more than Oracle’s $17-a-share bid. The companies agreed to the buyout three months later at $19.38 a share.

From the Associated Press:

“Clearly there’s frustration,” said Darren Chervitz, co-manager of the Jacob Internet Fund, which owns Yahoo stock. “I am not even sure if Yahoo cares about its shareholders because they didn’t show much regard for shareholders’ best interests in this process.”

Ballmer is also facing higher expectations. Many observers believed Yahoo would accept Microsoft’s bid. Instead, Yang is testing Ballmer’s patience, which is as deep as a puddle right now.

From the New York Times:

With a bid for Yahoo, Microsoft was trying to buy its way out of the problem. It was a controversial step and a gamble, but at least it was a big move. Now, there is no clear prospect of a quick fix for Microsoft, as the center of gravity in computing continues to move away from the personal computer, Microsoft’s stronghold, and to the Internet.

Microsoft remains a powerful company, and highly profitable, but its stock price has stagnated amid doubts about future growth. Years of antitrust scrutiny have tempered its competitive behavior in new markets.

Related posts on billso.com

• 30 April 2008: Microsoft-Yahoo deal possible in the next few days
• 18 April 2008: Antitrust regulators would fight a Yahoo-Google combination
• 5 April 2008: Microsoft’s offer for Yahoo may disappear
• 17 February 2008: Shareholders may bring Microsoft and Yahoo together
• 4 February 2008: Microsoft acquistion of Yahoo faces roadblocks
• 1 February 2008: Microsoft makes offer for Yahoo
• 25 January 2008: Oracle, BEA and middleware

The Microsoft-Yahoo takeover battle may be resolved soon, according to Wired:

One of the better insights came from Citigroup analyst Mark Mahaney, who handicapped the outcomes of the Microsoft-Yahoo war. Mahaney reckons there’s a 45 percent chance Yahoo sells out at a higher offer; a 40 percent chance Microsoft goes hostile; a 10 percent chance Microsoft walks away; and a 5 percent chance they both agree to the current price.

Yesterday’s New York Times had additional details. Saturday, 26 April 2008, was the deadline that Microsoft had set for Yahoo’s response to its recent purchase offer. According to this New York Times analysis, it seems unlikely that Microsoft CEO will abandon the company’s pursuit of Yahoo, because failure might send the wrong signals to the market.

Microsoft’s CFO, Chris Liddell, has led the company to spend more on acquisitions, and take on debt for the first time in the company’s 33-year history. He was profiled in Reuters article, which also discusses his management style.

To merge or not to merge

Microsoft doesn’t really need Yahoo, according to a recent research report. Michael Cusumano suggested in this New York Times article by Randall Stross that Yahoo is a poor fit with Microsoft’s enterprise software ambitions. SAP would be a better choice for Microsoft, especially after Oracle’s acquisition of BEA.

Another ZDnet report and this Wired article indicate that Yahoo has increased its severance packages for employees.

On 25 February 2008, Yahoo CEO asked his number two, Sue Decker, to join him on-stage at an important presentation, according to the New York Times. Decker has excellent ties with the advertising industry, and she was the real architect of Yahoo’s advertising business strategy.

Yang needs all the help he can get when facing nervous customers. At the event, Yang called Microsoft’s bid a “galvanizing event” for Yahoo managers, employees and board members. That’s some deep thinking… deep like a puddle. Threats of acquisition and unemployment can really command attention. The company’s plan to recapture its former dominance as an Internet portal is about seven years too late.

Photos courtesy of Carsten Knoch (top) and code_martial (bottom) through a Creative Commons license.

Related posts on billso.com

• 18 April 2008: Antitrust regulators would fight a Yahoo-Google combination
• 5 April 2008: Microsoft’s offer for Yahoo may disappear
• 17 February 2008: Shareholders may bring Microsoft and Yahoo together
• 4 February 2008: Microsoft acquistion of Yahoo faces roadblocks
• 1 February 2008: Microsoft makes offer for Yahoo
• 25 January 2008: Oracle, BEA and middleware

I’m always surprised when MSIS students tell me they haven’t joined an industry association like the Association of Information Technology Professionals (AITP) or the Association for Computing Machinery (ACM).

Trade groups are an excellent way to network and find jobs. I was a board member of the Honolulu AITP chapter for 3 years. The meetings are interesting, and the coconut job line is alive and well.

Student memberships in some of these groups are an excellent bargain. The ACM includes access to its digital library. It’s a great way to do a literature review without visiting a physical library. The ACM is a global organization, and its placement service lists jobs around the world.

Anyone who studies telecommunications and wants to stay in Hawaii needs to join the Hawaii Telecommunications Association (HTCA). This group holds a conference each October, and their monthly meetings are well attended by CXOs, managers and technologists.

10 Things recently published their own list of essential IT organizations, which provides some more groups.

Journalists are starting to discuss what financial analysts realized earlier this month: 90 percent institutional owners of Yahoo stock are also Microsoft shareholders. See this CNET article for details.

Fund managers don’t like to bid against themselves

This places companies like T. Rowe Price and the Capital Group in an awkward position. Yahoo CEO Jerry Yang has vowed to fight the Microsoft offer, even though a Microsoft takeover makes some sense for both companies. If Yahoo is seriously negotiating with News Corporation and AOL, as this report indicates, Yahoo CXOs must be quite desperate to avoid assimilation into the redmond hive mind.

An institution that holds YHOO and MSFT must balance its risk

Institutional fund managers may want an offer of US$40 per share for their Yahoo stock, but what happens if Microsoft’s stock price stumbles? These fund managers might consider a US$35 offer if it means a quick resolution to this battle. A proxy fight might take months to settle, and would send Yahoo into a tailspin as employees defect and CXOs waste time defending their firm.

On Thursday, the New York Times commented on this blog article by Bradley Horowitz, who announced on his blog that he was leaving Yahoo. Horowitz had been the VP of Yahoo’s Advanced Development Division, and his farewell message includes a few “ADD” puns. He wasn’t laid off – he simply left Yahoo to take a new position at Google.

The endgame plays out

The remaining Yahoo CXOs may not be ready to admit defeat, but it is clear that Yahoo management has less control over the company’s fate with each passing day.

See my earlier posts on the Microsoft-Yahoo debacle:

• 7 February 2008: Microsoft’s rocket ship
• 4 February 2008: Microsoft acquisition of Yahoo faces roadblocks
• 1 February 2008: Microsoft makes offer for Yahoo

Hawaiian Telcom CEO Mike Ruley was dismissed yesterday. His replacement is Stephen Cooper, co-founder or Kroll Zolfo Cooper, a New York City-based interim management firm. Cooper is best known as the Enron’s CEO during the company’s bankruptcy. Today’s Star-Bulletin article has a brief biography of Cooper. Kevin Nystrom, a senior director at KZC, will join HawTel as COO.

While Cooper stated in today’s Honolulu Advertiser that HawTel is not a “distressed company”, it’s now clear that the Carlyle Group is unhappy with their acquisition’s performance. HawTel has lost thousands of subscribers to mobile carriers and Time Warner Oceanic’s VoIP services, leading to US$137 million in financial losses since 2006. I mentioned some of the operational issues on my old blog on 16 November 2006, and last week BusinessWeek discussed how market forces have affected the US telecom industry overall.

The Advertiser noted that Ruley put his Kahala home on the market in early January, which is a possible indication that changes were coming at HawTel. The company has eliminated over 100 management positions since October 2007.