CEO Jerry Yang took to the stage at the Web 2.0 Summit yesterday, still scarred from Google's decision to pull out of a potential ad deal earlier that morning. What he said may not be entirely surprising, but it's certainly humbling to hear.
"I have to say that the best thing for Microsoft to do is to buy Yahoo!," he conceded. "We are willing to sell the company."
Three weeks earlier, Microsoft CEO Steve Ballmer spoke at the Gartner ITxpo conference in Florida, where he publicly admitted that pairing up with Yahoo! still makes "economic sense." His one caveat at the time was that he didn't know whether Yahoo! had a realistic price.
Yang also mentioned price yesterday: "I don't think that is a bad idea at all at the right price."
Can you believe it? These two CEOs are negotiating publicly. All we need now is for one party to throw out a tangible price and see whether it gets volleyed back.
It can happen. Heck, it will happen.
Yang knows he's toast. Google is no longer interested in jumping through the regulatory hoops required to get an ad deal done. Yahoo!'s plan to acquire Time Warner's (NYSE: TWX ) AOL took a big hit when AOL posted a surprising dip in online ad revenue this week. In other words, going through with that deal would certainly not boost Yahoo!'s share price.
As always, any Microsoft-Yahoo! deal will boil down to its price tag. That's a tall order, given how price was also a barrier for months earlier this year.
What is Yahoo! worth to Microsoft? It's easy to establish a ceiling. Google closed at $564.30 the day that Microsoft went public with its offer for Yahoo!. Google's stock has fallen by roughly 40% in that time. Under a similar smackdown, Microsoft's new offer should be in the high teens. However, Google has been eating away at Yahoo!'s market share over the past year, making Yahoo! worth relatively less. With Yahoo!'s Asian investments also getting pummeled, and the ad market outlook getting murkier, will Yahoo! be happy with half of Microsoft's original offer? Or less?
We'll find out. And I'll tell you this: Contrary to the way these things usually work, the first company to publicly state a price will be the best negotiator. They'll shift the pressure to the other side to get the deal done. So whether Microsoft shouts out "$15," or Yahoo! suggests "$18," the best salesman will win.
Further Foolishness to gauge Yahoo!'s worth: