OStatic

It's hard to believe, sometimes, how little faith the press has in the financial prowess of Microsoft. The company produced the person who became, for a long time, the richest person in the world? Accidental--nothing more. It tends to sit on a mountain of invested cash, instead of wheeling and dealing? Stupidity--that's all it is. In the wake of today's news that Microsoft is withdrawing its offer to acquire Yahoo, the press is nearly unanimous in saying that the move "culminated a whirlwind, three-month courtship that it initiated on Jan. 31." Game over, in other words. Give me a break. As Om has beaten me to point out, the game has just begun, and there are still important things hanging in the balance here for open source.

In Om's analysis above, he points out that Yahoo's stock will swoon next week on the basis of Microsoft's announcement. It will do so big-time on Monday--I agree. For one thing, in a situation like the one we have been waiting out with Microsoft and Yahoo, the number of investors putting financial arbitrage plays into place balloons.

In some cases, as with investors deploying both call and put options at the same time--where simple volatility can create profits for them no matter where the stock ends up--Monday's inevitable volatility may not cause them to unlock their positions. In fact, many of them will cheer the volatility on.

However, the vast majority of the investors who put on positions were undoubtedly betting on mighty Microsoft to succeed at this juncture. Even among those sophisticated enough to hedge bets, many of them leveraging their bets, the hedged bets were skewed in Microsoft's direction, in my opinion. It is their exit stage right that is likely to dump Yahoo's stock big-time, starting Monday, and I won't be surprised to see the whole stock market swoon in sympathy.

What does this bush-league financial analysis from a tech writer have to do with open source? Plenty. As I wrote before, Yahoo's long-standing open source culture, and its many open APIs and free, open tools hang in the balance if Microsoft is ever to acquire the company.

I've covered Microsoft closely for more than two decades, and I've met the people at the very, very top of the company--unusually methodical, persistent people. Non-giver-uppers. The company would never make such a public, expensive attempt to acquire another company--by far its biggest acquisition attempt ever--if it didn't mean business. Even more tellingly to me, Steve Ballmer said this week that he wouldn't go "a dime" above what he deems Yahoo's value to be.

That statement right there is the manifesto of a value investor--one who tries to buy "a dollar for sixty cents," as Warren Buffett is often quoted as saying. Buffett, by the way, just held his always interesting annual shareholder meeting and guess who was in attendance?: second-richest American and Berkshire Hathaway board member Bill Gates. They attend football games together, play bridge online together, and Warren was in attendance at Bill's wedding in Hawaii. Buffett has bequeathed Bill's foundation with tens of billions of dollars. 'Nuff said?

No, the people at Microsoft are not financial boneheads. This weekend's news will almost certainly lead to Yahoo's stock dropping, and I think Microsoft will end up buying the company at a price far below what it has offered. Microsoft has its eye on Yahoo's shareholders, who are going to be much more unhappy next week then they were this week.

For those of us who place value on Yahoo's openness and wonder what Microsoft's ownership might mean, the game is not over. It's now picking up steam.

Do you think Microsoft has given up for good?

• Microsoft
• yahoo