Actually, it's worse than that, because two proud companies are doing everything possible to diminish the value they would bring to the other under a friendlier union.
The carnage cuts both ways on that front. Microsoft has destroyed the value of its original offer by overbidding for Yahoo! in the first place. As Wall Street has punished Microsoft's shares, that original $31 offer now has a blended cash and stock value of $28.89 based on Mr. Softy's current price.
The cruel twist here is that fears of Microsoft submitting a higher offer have sent Microsoft's shares lower, resulting in a tangible decrease in the value of the original bid. It would be hilarious if it wasn't so tragic. Now that Microsoft is hinting that it won't up its offer, things may stabilize, but Microsoft isn't the only one in retreat.
In a blaze of glory
Yahoo! has also warmed to a scorched-earth tactic in fending off Microsoft's advances. First we had it eating into its stash of greenbacks to bankroll acquisitions, nibbling at the $2 billion in cash on its balance sheet that Microsoft was counting on to complete the cash portion of its buyout.
Now we find Yahoo! green-lighting costly severance packages that will make it more expensive for Microsoft to let Yahooligans go if it does indeed complete its acquisition. Tacking on as much as two years of salary in severance and accelerating the vesting of options will make absorbing Yahoo! that much more costly.
Even if you try to see it from Yahoo!'s perspective -- arguing that the beefed-up severance deals are necessary to retain key hires during these turbulent times -- are you aware of the state of Yahoo! these days? The company just canned 1,000 of its employees, dude. The seeds of low morale were already planted on pink slip soil.
Despicably selfish on both ends
I am not an investor in Yahoo! or Microsoft. I have no skin in the game of the other names like Google (Nasdaq: GOOG ) and News Corp. (NYSE: NWS ) that have laughably come up as potential bidders.
None of that materialized. No one is going to pay so rich a multiple for a company in decline, and that is what Yahoo! is, whether you go by shrinking employee rolls or Wall Street's projections for profits to fall again in 2008 after dipping in 2007. Microsoft is Yahoo!'s last hope to bow out at a respectable premium to what Mr. Market thinks that Yahoo! is actually worth.
I'm not sure why Yahoo! believes otherwise. I can't tell you why it's putting its pride before its shareholders. Fattening its severance deals and shopping sprees actually cut against the fiduciary duty to its actual owners if it shoos away Microsoft or finds it lowering its bid to offset the pricey obstacles that Yahoo! is heaving to derail the deal.
Microsoft is no saint, either. By going the proxy battle route, Microsoft will drain funds out of both companies. Win or lose, Microsoft will be poorer than when it started. It's banking on vindication. After watching the market lop off a whopping $40 billion in market cap since making its offer, it, too, is putting pride before its shareholders.
Microsoft doesn't need Yahoo!. Two sickly companies in cyberspace taking on a healthy Google is actually an easier fight for Big G than to bump up against two desperate rivals slinging kitchen sinks at it from opposite ends of the cage.
However, Microsoft and Yahoo! are slaves to their egos. Yahoo! should accept the premium that no other company would pay. Microsoft should walk away from the deal that no other company would offer. It's what rational shareholder-friendly companies would do.
As fate would have it, that's the last thing that these two companies are these days. They're left with crummy pieces on the chessboard, and no endgame in sight. They just don't realize it yet. It's more than just a stalemate. It's stale, mate.