MicroHoo: Caught Between Scylla and Charybdis

Today, as The Wall Street Journal reports, the Microsoft (MSFT) board, which met to consider its next move in the Yahoo (YHOO) takeover battle yesterday afternoon, didn’t decide anything.

And here we thought Yahoo was the champ at dithering.

Not so, it seems, as Microsoft CEO Steve Ballmer mulls over the many options, each of which the software giant’s execs have cavalierly raised and dismissed publicly in the last weeks.

We know it is a big deal, but Ballmer’s ruminating is starting to make Hamlet seem decisive.

To be fair, none of the choices are winners–at this point, it’s more like a digital version of Scylla and Charybdis.

For those who have not cracked Homer’s “Odyssey” since high school, it’s one of the more vexing challenges that Odysseus faced on his long trip home.

The basics: A narrow strait. On one side a sailor-eating monster called Scylla and on the other a sailor-sucking whirlpool. Thus, a need to maneuver away from the death-to-all whirlpool means you have to sacrifice a sailor or two to Scylla.

In other words, you have to lose something no matter what.

And that is exactly Ballmer’s dilemma in regards to Yahoo.

If he pays more, it adds billions of dollars to the cost and kind of makes him seem silly for saying he would lower the price.

It also begs the question of why Ballmer did not do this sooner to get this deal done more cleanly. And now its $32 to $33 rise, which would have been welcome even a week ago, seems too cheap, with Yahoo shareholders now wanting over $35.

If Ballmer offers less, goodbye big shareholders like Legg Mason, who will likely become recalcitrant to hand over the company after a financial hair cut.

If he walks away, Ballmer risks losing momentum in his quest to win in the online advertising game versus archrival Google (GOOG).

In addition, if Yahoo stock drops enough, other players will enter the picture. Also, the Google threat to be Yahoo’s ad partner–which is in the works, whether illegal or not–has become inevitable and has been ironically finally consummated because of Microsoft’s unsolicited bid.

And, finally, if he stays in it without resolution for much longer, Ballmer risks declining morale of his own employees. Make no mistake–especially Microsoft’s important software engineers–increasing numbers of the company’s employees do not support this deal now.

So to avoid the dreaded whirlpool and geek-eating monster, Ballmer seems to have one option now–pay up if he really wants the company and thinks online advertising is a mission-critical aim of Microsoft.

And, if not, walk away and keep on walking.

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