In comedy, timing is everything. So why not in mergers?

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We were reminded of that Wednesday as we talked with someone close to Microsoft’s zany on-again, off-again courtship of Yahoo. Yahoo dodged every Microsoft approach as if the process was some kind of $40 billion-plus version of the old videogame Frogger–leaping between shareholders, Carl Icahn and potential replacements for the board all zooming by while Yahoo tried to skip across to a life of independence. (Or at least, codependence with Google.)

What our person close to the Microsoft bid noted is the crucial role of timing in all this. The way the two companies approached their responses and counter-responses sometimes made it seem as if they were negotiating two different deals. Microsoft tried to open formal negotiations with Yahoo in the spring of 2007, but Yahoo stalled until their annual meeting past and Microsoft’s interest presumably died. Then in October, Yahoo drafted a news release to reject any potential Microsoft bid, which, at the time, didn’t even exist. Microsoft did make a public, $44.6 billion bid in January and, well, you know the rest.

This person described the negotiating dynamic thusly: “Yahoo’s advisers, board and management dramatically misjudged Microsoft.” His speculated that Yahoo instituted a plan of Olympic foot-dragging (in the well-chosen words of Boom Town blogger Kara Swisher) to either get Microsoft to offer as much as $37 a share or get it to abandon the bid entirely.

Microsoft, on the other hand, is the kind of company that, when it decides it wants something, wants it right away. Microsoft’s deal-making history shows that the company isn’t known for its impulse control: it prefers to pay a rich price and win quickly rather than wait to get a better price. In fact, Microsoft pays, on average, a premium of 43% for deals. (The January bid offered Yahoo a 62% premium.)

This isn’t just an academic question. Timing played a big role in Microsoft’s thinking because the software giant also wanted to push a deal through while the current, merger-friendly Bush administration is still in office. By January, a new administration will take hold and there will be more uncertainty surrounding merger approvals. Many presume an Barack Obama administration would be less merger friendly; and even in a John McCain administration, presumed more merger friendly, little could be done quickly as Congress takes the first few months of the year considering/approving the major appointees of the new administration before getting up to speed on lingering mergers.

Most of that is in the past, however. The major timing question now is only whether it is too late to salvage any deal.