Pundits may credit Yahoo CEO Jerry Yang's bullheadedness with scaring off Microsoft for the moment, but it appears that a tiny, yet timely, legal maneuver by Yahoo's lawyers also played a key role.
On Saturday, Microsoft walked away from its three-month pursuit of Yahoo after leaders of the Sunnyvale, Calif., Internet company wouldn't bite at a two-dollars-sweeter, $33-a-share offer. They apparently wanted $37 a share.
In a letter to Yang, Microsoft CEO Steve Ballmer said concerns over Yahoo's plans to pursue a deal to outsource some online advertising to Google was also a deal-killer. Such a deal would bring "a host of regulatory and legal problems" and would weaken Yahoo's paid search advertising position, he wrote.
"Your apparent plan to pursue such an arrangement in the event of a proxy contest or exchange offer leads me to the firm decision not to pursue such a path," he concluded.
Legal observers say it was a clever delay tactic by Yahoo's lawyers at Skadden, Arps, Slate, Meagher & Flom that gave the company the time to come up with the Google deal. On March 5, the board voted to amend the company's bylaws to push back the deadline for nominating directors to the board from March 14 to 10 days following the announcement of the annual stockholders meeting -- stalling the threat of a proxy fight. That meeting hasn't been scheduled yet.
"It really bought them more time to bake the Google deal," said Steven Davidoff, a Wayne State University Law School professor who writes for The New York Times' DealBook. "It was a small little maneuver, but it bought some time for Yahoo -- you have to give credit to Skadden for doing that."
Kenton King, the Palo Alto, Calif., Skadden partner leading the deal team, said it's a rarely used move and was born of the unique circumstances.
"It had the advantage at the same time of giving shareholders more time and also taking some pressure off the situation," King said.
The move also had the advantage of giving Yahoo time without dismissing the Microsoft bid -- something that corporate law frowns on -- said Edward Deibert, an M&A lawyer who heads the business department at Howard, Rice, Nemerovski, Canady, Falk & Rabkin.
"That was a very wise move on their part," Deibert said. "It didn't affect their fiduciary obligations."
What happens next is anybody's guess. Some speculate that Microsoft will come back to the table, a la Oracle and BEA Systems. That deal saw Larry Ellison's company walk away and then come back 2 1/2 months later with an $8.5 billion deal in hand.
Others say that because of Monday's nearly 15 percent decline in Yahoo's stock, investors aren't expecting a deal any time soon.
"A drop like that suggests that investors think that Ballmer's announcement was not just cheap talk," said Eric Talley, a business law professor at UC-Berkeley School of Law.
Waiting could have its consequences. The next presidential administration could mean more scrutiny for big M&A deals.
"You have to be mindful of the calendar and the clock," said Gary Reback, an antitrust veteran at Carr & Ferrell.
On the other hand, a proposed Google deal might come under more scrutiny under a more exacting antitrust department, Talley said. He suggested that Microsoft could go after Google for interfering with the deal to preserve its market position in search.
"It depends on whether [Microsoft's] a plaintiff or a defendant," Talley said.
Skadden's King wouldn't speculate on what will happen next, saying only, "We stand ready to advise our client on whatever comes."
While King was able to work on two other transactions -- a smaller Yahoo deal and Liberty Mutual Group's $6.2 billion purchase of Safeco -- during the three-month Microsoft saga, he said he was re-acquainting himself with his other obligations Monday.
"I'm trying to catch up with other clients," he said.