• Financial Times, Thursday, February 21, 2008 11 AM

Microsoft chairman Bill Gates indicated that Yahoo's engineering talent was one of the main reasons his company lodged a $45 billion bid for the Web giant (although that bid has now been reduced to $41 billion). But an exodus of top engineering and management talent often accompanies even the friendliest of takeovers--and this one is far from friendly.

How unfriendly? Microsoft now plans to submit its own board of directors at the next Yahoo shareholder meeting, which takes place in June; the deadline is March 13. The software giant may also bring its cash and stock offer directly to shareholders. Yahoo, meanwhile, has battened down the hatches, using a poison pill to keep Microsoft from gaining control of the company without board support, and offering employees a hefty severance if they lose their jobs as a result of a takeover. This could cost Microsoft $1 billion or more.

Despite the brewing mess, M&A bankers tell Henry Blodget (http://www.alleyinsider.com/2008/2/m_a_bankers_on_yahoo_microsoft__done_deal) of the Silicon Alley Insider that Microsoft-Yahoo is "a done deal." They say Microsoft will allow Yahoo to hold talks with others for a few more weeks before ramping up the proxy rhetoric. Meanwhile, the Web company's shareholders will pressure the board to do something, and eventually, Yahoo's banker Goldman Sachs will call Microsoft's banker Morgan Stanley to begin talks. At the 11th hour, the bankers say Microsoft will offer a price concession, and the whole thing will be over.

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