What does this all mean? Yahoo is willing to have a proxy fight and thinks they can win. A deal between Microsoft and Yahoo is probably further away than ever. The situation is starting to look like a lose-lose for Microsoft. Either they pay up too much for Yahoo and dilute their share price, or after a long proxy battle, Microsoft eventually acquires an engineer/key employee depleted Yahoo at the lower stock price.
In fact, if Microsoft really wanted to play hard ball at this point they could simply give Yahoo 48 hours to accept the terms or pull the offer off of the table. With the offer off of the table Yahoo stock would immediately drop. The lawsuits would take place driving the stock down further and if Microsoft just waited 6 months or so they might be able to end up buying the stock in the end for somewhere around $8 a share.
Why is Bear Stearns Trading Above Deal Price? Written By: David Neubert 2008-03-18 11:05:52 I've been getting the inside scoop from some hedgefund traders (who always request to remain anonymous). One told me that the reason Bear Stearns (BSC - $7.90) is trading so far above the deal price with JP Morgan (JPM - $41.00) is that bond holders who NEED the deal to go through are buying millions in equity to save their billions in debt. The will eat the difference between where they buy the equity and $2.00 in order to protect much higher numbers in debt. Also, the equity acts as a nice hedge. If the deal does not go through, Bear Stearns equity will go up a lot and the bonds will go down.
Lesson in hedge fund thinking: Equity up? The bank is being sold cheap at the expense of equity holders to protect bondholders. No deal means the equity can trade up speculation that another buyer with more time to analyze the company will pay up. Bonds Down? If JP Morgan walks away from its government subsidized guarantee, bonds fall.
