Microsoft Chief Executive Steve Ballmer is pumped up about the Microsoft-Yahoo merger possibility. He states that even if the going gets tough, Microsoft will keep going, stating to investors, "We are on a path — we were on a path and we will stay on that path regardless."  (Source: Wired)
While Microsoft looks to break bank for Yahoo, Yahoo may have other plans

The Microsoft-Yahoo merger promises to transform the online world if it goes through.   The last few days have been filled with frenzied reports.  First Microsoft announced an unsolicited $44.6 billion dollar bid for Yahoo, which has been struggling mightily as it bleeds search engine marketshare to rival Google.  Bidding heated up with the resignation of Terry Semel, Yahoo's Chairman and former CEO, who had strongly opposed the deal.  However, the deal acquired a new rival when Google announced that it was considering legal action against the move.

Microsoft re-evaluated exactly how to muster up the cash for its one half cash, one half stock bid.  The company has a significant cash reserve of $21 billion, a impressive figure that would make most corporate executives salivate.  However, Microsoft needs $22.3 billion, and it also does not want to deplete all of its cash resources.  So Microsoft revealed that it is considering something once considered taboo inside the executive circles of the company -- borrow cash in the form of debt sold on the capital markets. 

Microsoft Chief Financial Officer Chris Liddell broke the news at an annual analyst strategy meeting stating, "It’s likely we’re actually going to borrow for the first time.  It’s going to be a mixture of the cash we have on hand plus debt."

Microsoft was tight lipped on whether it was already started buying Yahoo common stock to help seal the deal, and on what kind of debt exactly it will seek on the capital markets.  Microsoft Chief Executive Steve Ballmer spoke at the meeting, stating, "We trust the Yahoo board and the Yahoo shareholders will join with us quickly in deciding to move down an integrated path."

Microsoft's confidence may be misplaced: Yahoo's board expressed a quite different story.  It will be taking its time in considering the offer.  There may still be significant reticence to the offer from Yahoo CEO Jerry Yang, despite the resignation of Semel.  While the Board is thought to be loosely supportive of the offer, Yang traditionally has opposed such a merger and supposedly helped to nix a possible deal with Microsoft a year ago.  An inside source familiar with Yang states that getting digested into Microsoft's corporate empire is "Jerry’s worst nightmare."

Also, sources familiar with Yahoo's strategy reveal that the company may soon decide on a radically different approach and reject Microsoft's offer.  These sources claim that Yahoo may turn around and enter into an alliance with rival Google to ward off the buyout. 

Another important development is that two Congressional committees have already promised to hold hearings on the merger should it go through, to determine if it violates antitrust laws.  These hearings will focus, according to legal experts, largely on not whether Microsoft and Yahoo will form a monopoly, but rather whether their businesses overlap too significantly -- another important feature of antitrust laws that has nixed many a past merger. 

Microsoft expressed that whatever hardship it faces it will stick to its guns and keep on its current path even if it leads to a bitter end.  Ballmer states, "We are on a path — we were on a path and we will stay on that path regardless."

Investors are thrilled at the prospect of Microsoft selling debt, and venture capitalists are thrilled with the merger as they feel it will drive up the acquisition prices on start-up.  A strong two competitor online field will fuel a bidding war for startups these capitalists believe.  Analysts were quick to lavish praise on Microsoft's decision to go into debt.  Kim Caughey, senior analyst at Fort Pitt Capital Group, states, "Microsoft can probably get a lower price of debt than equity.  I’ve often wondered why Microsoft sits on the pile of cash. It doesn’t make a lot of financial sense."

What will come of the unfurling drama of Microsoft-Yahoo-Google is anyone's guess.  The next weeks promise to be very interesting though.

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