Congratulations, Microsoft (Nasdaq: MSFT). You shocked the world by walking away from Yahoo! (Nasdaq: YHOO) over the weekend.
I know the market doesn't necessarily believe you. Why else would Yahoo!'s share price have retreated to the mid-$20s, instead of back into the high teens where it was before you entered the frame three months ago? It's not as if Yahoo!'s current fundamentals can support today's valuation.
We've all got questions, Microsoft. I'm not sure if you're ready to answer them, but I may as well ask the four questions that are weighing on my mind now that we're a trading day removed from the tumultuous weekend.
Are you really giving up on Yahoo!?
You can't blame us for being skeptical. We don't know if Larry Ellison is whispering in your ear. We don't know if this is some elaborate plot to send Yahoo!'s shares lower, so you can come back at a dirt-cheap price.
I don't think that's the case. A humiliated Yahoo! wouldn't be as valuable to you as a proud Yahoo! You may not care if Yahoo! executives get bashed over the next few months, but the brand is going to take a beating, too.
However, if you really are serious about walking away for good, prove it. Declare a $10 billion share repurchase plan later this week. Spend the next few weeks on a big-ticket shopping spree. Show the world that you're not hoarding your greenbacks for another play at Yahoo!
Yes, I realize that these tactics would work even if you really were secretly coveting Yahoo!. Once the market sees that you are burning through your greenbacks, Yahoo!'s shares will be back in the high teens, with investors sensing that a potential acquisition ceiling has crumbled. Either way, a massive buyback would help prop up your share price. Given the pathetic short-term interest rates these days, the move would also be highly accretive to your bottom line.
Is it really that bad?
The market was stunned to see you back out of negotiations, but what really shocked me was your move to bump up the value of your bid by $5 billion -- from $29-ish a share to $33 a share -- in a last-ditch effort to win Yahoo!'s hand.
This concerns me. It makes me wonder if your organic future is darker than you're letting on. In a comparison with Yahoo!, few would have pegged you as the more desperate one. However, you're the one that chose to bend.
Your last quarterly report was a dud, with weakness in your flagship operating system software. Was Yahoo! your one-way ticket out of Vista country? You held firm to your price with Yahoo! for three months, but sweetened it only after your quarterly profits dipped. So how bad is it out there in Redmond?
Is it too late to catch up overseas?
One of the things that made Yahoo! so attractive was its foothold in Asian companies that were slaying their Western rivals. Yahoo! Japan, Alibaba's Taobao, and South Korea's Gmarket (Nasdaq: GMKT) -- all Yahoo! minority investments -- have either beaten eBay (Nasdaq: EBAY) or are beating eBay. Yahoo! Japan is also faring better than Google (Nasdaq: GOOG) in Japan.
Is the global land grab over? Was the play on Yahoo! simply a matter of acquiring the acquirer? If there are no early-growth-cycle plays to be had, you may not be able to buy your way into prominence overseas. You certainly have the greenbacks to do it, if it's possible.
For now, at least, you can outspend both Google and Yahoo! combined. However, should we take Microsoft's reluctance in meaty overseas Internet acquisitions as an admission that the party is either over or too prohibitive to crash?
What will you do for an encore?
The market is turning to potential dot-com purchases, though your last quarterly report showed surprising strength in your video game business. Is this your new growth workhorse? If so, why aren't you buying video game developers instead of putting up all of your bankable bucks on Microhoo?
You did buy in-game advertiser Massive two years ago, but why have you been out of the buyout battle for Grand Theft Auto's Take-Two Interactive (Nasdaq: TTWO)? Why did you let Activision (Nasdaq: ATVI) be the one to walk away with World of Warcraft's Blizzard?
Instead of taking on Google, a battle that you are unlikely to ever win, why not beat Google in the areas where it doesn't have much of a presence?
Is that four questions already? I didn't think I'd have so many, though I guess it's fitting since the answers are so few.
For related Foolishness:
Microsoft is an Inside Value recommendation. Activision and eBay are Stock Advisor selections. Gmarket and Take-Two are Rule Breakers. You don't need to ask a lot of questions to find the answers you need in stock research. A 30-day trial subscription is available to see which newsletter is right for you.
Longtime Fool contributor Rick Munarriz is a fan of Yahoo! and Microsoft, but not of bad weddings. He does not own shares in any of the stocks in this story. Rick is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.
