Yahoo: Microsoft takeover bid is killing us!

In Yahoo's annual report yesterday, the company claimed the Microsoft hostile takeover bid has been bad news for the company, distracting management, chasing off business partners, possibly causing employees to flee, and making for volatile stock prices. And there's only more bad news ahead.

The annual report doesn't pull any punches when it comes to Microsoft. It has an entire section labeled, "Microsoft’s unsolicited acquisition proposal has created a distraction for our management and uncertainty that may adversely affect our business."

Here's the meat of that section:

The review and consideration of the Microsoft proposal (and any alternate proposals that may be made by other parties) have been, and may continue to be, a significant distraction for our management and employees and have required, and may continue to require, the expenditure of significant time and resources by us. Microsoft’s unsolicited acquisition proposal has also created uncertainty for our employees and this uncertainty may adversely affect our ability to retain key employees and to hire new talent. Microsoft’s unsolicited acquisition proposal may also create uncertainty for current and potential publishers, advertisers and other business partners, which may cause them to terminate, or not to renew or enter into, arrangements with us.

The section also notes that because the Yahoo board has turned down the bid, Yahoo has been hit with seven stockholder suits, and says, "These lawsuits or any future lawsuits may become time consuming and expensive."

Later on, the annual report notes that the Yahoo stock price has been particularly volatile because of the takeover attempt. And it warns that if the deal doesn't go through, the price may plunge:

If a transaction does not occur, or the market perceives a transaction as unlikely to happen, our stock price may decline.

All this is true; the longer the takeover attempt goes on, the harder it will be for Yahoo. There's only bad news here for the company. If Microsoft succeeds, Yahoo may essentially be gutted and folded into Microsoft. If Microsoft doesn't succeed, then Yahoo still faces tough times figuring out a way to survive, as Google continues to grow. It's not a position I envy.