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Microsoft might have no experience at big-time Wall Street wheeling and dealing, but you have to wonder how it got itself into the mess that was spreading in all directions on Monday.

For weeks it stayed clear of Carl Icahn, letting the veteran activist do the dirty work of roughing up Jerry Yang and the rest of Yahoo’s board. There was still some value in keeping to the high ground.

Then earlier this month, with every sign that a Yahoo deal was slipping out of its reach, Microsoft finally decided to throw its lot in with Icahn, promising to negotiate with him should he succeed in overturning Yahoo’s board and installing his own slate of directors.

Looks like a bad idea. The odd-ball combination of corporate raider and software rube has now produced a debacle that a gleeful Yahoo, desperate to be on the attack for once, is only too happy to exploit (Yahoo smartly got in first with its version of events on Saturday night, leaving it to Icahn and, finally, Microsoft to try to put their gloss on the matter.)

Beneath all the “he-said, she-said” back and forth are a couple of telling points.

One is that the software company seems to feel that it allowed Mr Icahn to lure it into new negotiations with Yahoo against its own better judgment. This tortuous sentence from the Microsoft statement says it all:

Among other things, the enhanced proposal for an alternate search transaction that we submitted late Friday was submitted at the request of Yahoo! Chairman Roy Bostock as a result of apparent attempts by Mr. Icahn to have Microsoft and Yahoo! engage on a search transaction on terms Mr. Icahn believed Microsoft would be willing to accept and which Microsoft understands Mr. Icahn had discussed with Yahoo!.

Did you follow that? The simple message: Icahn may not be the best ally and go-between to have on hand at times like this.

Making that point even more sharply is Microsoft’s belated and ineffectual attempt to characterise this latest proposal as simply an effort to sweeten the terms of the search deal it had already offered - not an move to unseat Yahoo’s board and management.

This is not how Yahoo chairman Roy Bostock took it - and it is certainly not what Icahn had in mind, to judge from his own letter today (he held out only the carrot of “keeping a number of the current board members” and letting Jerry Yang return to the largely honorary position of Chief Yahoo.) That gave Yahoo ample excuse to reject Microsoft’s latest offer.

With 18 days to go until Yahoo’s shareholder meeting, Microsoft has to use its ammunition wisely. Getting tangled up in Icahn’s scheming is not a good start.

July 14th, 2008 in Uncategorised | Permalink