Microsoft and Yahoo: Where were the mediators?

They help countries and couples. Why not businesses?

from the May 12, 2008 edition

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In the Microsoft-Yahoo negotiations, a mediator could have helped in several concrete ways.

First, since disagreements about the price of a company usually turn on financial predictions, mediators can help the parties structure creative options for mitigating their risks. Acquisition agreements often contain "earn-out" provisions that award benefits to the seller if the deal turns out to be a winner for the buyer. Without any investment in the outcome, mediators become "honest brokers" who can advance such ideas without the perception that they are seeking an advantage based on secret knowledge.

Second, a mediator can help the parties obtain neutral and independent opinions – as opposed to the potentially partisan opinions of the parties' hired experts, lawyers, and investment bankers.

Third, a "mediator's proposal" can test the waters of compromise. Let's say the mediator asks each side to tell the mediator – on a confidential basis – whether they would accept a deal at $35 per share. This protocol means the mediator will report the answers only if both sides say "yes." Thus, each side can take the risk of saying yes because the other side will never know unless they, too, have said yes.

When deals collapse, conflict often migrates to another venue. Yahoo is already defending lawsuits from disgruntled shareholders, angered by management's failure to accept Microsoft's offer. However, even if there were no possible zone of agreement in the Microsoft-Yahoo case, business managers in other deal negotiations might consider whether calling in mediators, when needed, might save them from bargaining failures and make both sides better off.

• David A. Hoffman is a lawyer, mediator, and arbitrator at Boston Law Collaborative, LLC. He teaches mediation at Harvard Law School.

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