Microsoft Takeover Bid for Yahoo!
This morn, all eyes are on the takeover proposal, in a letter from Steve Ballmer to Yahoo's Board of Directors, stating an offer of $31 in cash or 0.9509 of a share of Microsoft common stock per share for Yahoo (YHOO). The total deal valued at $44.6 billion -- a huge 62% premium to Yahoo's closing price of $19.18.
The most interesting part of this is that Mister Softee seems to have waited until Google had its first bad earnings report -- missing the earnings consensus by 2 cents, and perhaps looking in their eyes, vulnerable. Perhaps it was coincidence, but the timing looks fortuitous.
A few questions immediately pop up:
Why is Ballmer & Co. paying such a big premium? Does this imply the entire Tech market is hugely undervalued -- or is Microsoft (MSFT) desperate to catch up with Google (GOOG)?
And since Mister Softee was so desperate to stop the Google/DoubleClick deal on Anti-Trust grounds, it makes me wonder if there will be any legal issues between a marraige of Yahoo and Microsoft. Obviously not for search -- their combined market share is still tiny compared to Google. But consider what these two companies are: the biggest software maker now wants to get together with the biggest web portal. That could certainly raise some valid anti-trust issues.
What is not known yet is how the two different search technologies -- Yahoo's Panama, and Microsoft's -- will integrate.
I'll go even a step further: Mister Softee's biggest cash cows --
Windows and Office -- look shakier than they ever have. There are real
competitors for PCs (Apple, Linux) and lots of free or nearly free
office software (Open Office, Google Apps). I assume Microsoft is
projecting out current trends 5 and 10 years; they might truly believe
that if they can't compete in the online search/advertising space, they
are in trouble.
Here's the ironic part: The 2 most visible losers in the search area may be getting together -- and somehow, that's worth 150 point swing to the Dow futures.
I guess the negativity isn't quite as excessive as some people claim!
~~~
Some recent, related headlines:
• Yahoo Says Former Chief Semel Steps Down as Chairman (Bloomberg, 1/31)
• Google posts 17% profit gain, but shares slide lower (Marketwatch, 1/31)
• and the WTF headline: Google’s Loss Is Murdoch’s Gain (NYT's Bits)
>
Source:
Microsoft Letter to Yahoo!
PRNewswire-FirstCall, February 01, 2008: 06:30 AM EST
http://money.cnn.com/news/newsfeeds/articles/prnewswire/NYF04001022008-1.htm
Friday, February 01, 2008 | 06:34 AM | Permalink
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maybe MSFT can improve YHOO's sludgy web code the same way they improved XP into Vista.
oh, wait, i guess that wouldn't be a good thing ;-)
Posted by: sysin3 | Feb 1, 2008 6:58:01 AM
A couple of other strategic questions that should be on the table but first a pointer. Ken Auletta was recently on the Rose show talking about GOOG, YHOO and the B2C business in general. A very good show, some useful insights with the caveat that Auletta is a writer and reacting to things rather than a technologist who's seeing deeper:
http://tinyurl.com/23wp3z
MSFT has gotten very large and unwieldy indeed so 1) how're they going to make Yahoo re-build it's organization and then 2) align one big mess with another ? Do a search on Code Red the emergency MSFT efforts to save Longhorn which brought it out late, emasculated by 3/4+ and with a resource intensive and non-appealing APPL-imitating feature set. So 3) what makes anyone think MSFT is the champion coders and will be able to save YHOO there ?
What is YHOO's fundamental business model and why isn't it working ? The COO was recently interviewed at Davos and couldn't tell the MoneyHoney what their strategic plan was. Any good exec should be able to be clear & compelling with an elevator speech if they know it. So (4) Yhoo have a clue as to what their business is and should be ?
Bottomline - this one behemoth over-paying because it can for another, smaller behomth which is much worse shape strategically, technically and structurally. A C+ firm buying a D/D+ firm. Yet both have inherent strengths that could be their salvation. Just not in this form.
All of course IMHO :)
Posted by: dblwyo | Feb 1, 2008 7:19:21 AM
I am watching CNBC discussing the takeover -- there is absolutely zero critical thinking going on. None.
They picked up the pompoms, and they are doing cartwheels. No intelligence whatsoever.
I picked up more issues and thinking here in a short blog post and a few comments than in their past 45 minutes of coverage.
It boggles the mind.
Posted by: John | Feb 1, 2008 7:28:23 AM
watching CNBC money shows for insightful information is an exercise in foolishness....the whole crew, with the exception of David Faber, are clowns
Posted by: grumpyoldvet | Feb 1, 2008 7:42:32 AM
Short tech at the open
Posted by: ht | Feb 1, 2008 7:49:34 AM
I can't believe Microsoft is buying a company with a questionable business model for such an absurd amount of $$. I guess now is a good time to short MS stock.
This must be the top of Bubble 2.0 in IT, sort of like TimeWarner buying AOL for 20bn.
Posted by: Dude | Feb 1, 2008 7:53:32 AM
What is not known yet is how the two different search technologies -- Yahoo's Panama, and Microsoft's -- will integrate.
Does it really matter? Does anyone seriously believe this will help them take significant search share from GOOG? I could not be that atypical: I use GOOG to search (sometimes AltaVista), but never MSFT or YHOO. I seriously doubt this will change.
MSFT has serious delusions of grandeur.
Posted by: eh | Feb 1, 2008 7:57:53 AM
Hey Barry,
FBN has got your picture on yahoo ads. Check the print screen:
http://i30.tinypic.com/2wmdkyc.png
Saw that while browsing http://finance.yahoo.com/q?s=yhoo
Posted by: mhm | Feb 1, 2008 8:00:58 AM
Let's see...YHOO gains 13.75B in market cap at current bid...but MSFT is losing 13.5B. So let's rally Nas futures off weak GOOG numbers and staring at a horrible housing number. Not even going to discuss the myriad of ways this "deal" will fall into the "Synergy Trap".
Short with both fists.
Posted by: Steve Barry | Feb 1, 2008 8:11:33 AM
I'm not sure where Yahoo has value. I use Yahoo Finance, and find it excellent, it's 100 times better than Google's dire offering. But I've no idea how they monetise my use. Maybe they should start a brokerage firm and link it in?
As for search, I don't think I've ever used Yahoo. I'll be amazed if a competitor to Google appears even within the next 10 years. And the whole idea of a "portal" just seems bizarre to me...I guess it's your average mom who doesn't know how to change the home page that drives traffic there...
If this is what's taking the market up, I'm using it as a great opportunity to dump bad longs and get short.
Posted by: 2and20 | Feb 1, 2008 8:24:36 AM
I use Yahoo Finance, and find it excellent, it's 100 times better than Google's dire offering.
AOL Finance is every bit as good and gaining market share.
Posted by: eh | Feb 1, 2008 8:32:15 AM
OK, some dose of reality to the pesssimist MSFT bashers on here.
First, MSFT has incredible financial power-it has $20 billion in cash and ZERO long term debt to go along with its $350 billion mkt.cap. It could borrow $50 billion in a nanosecond. Ballmer probably has a platoon of assistants fielding the calls from the investment bankers now.
Second, and I know this may be a surprise to you, YHOO is the #1 page count site on the internet...that's right, the #1, more than Google. See:
http://www.alexa.com/site/ds/top_500
Third, the problem with YHOO is margins--they suck. If YHOO doubles its margins to industry norms, that's $6B annually in added net. MSFT can bring that discipline.
Fourth, MSFT's position in the corporate market is so strong it's virtually inviolable. Open Office is not threat. Google apps? You're joking. They have no real application power.
Fifth, Vista. As someone who is reluctant to move from XP to Vista, guess what? I am going to HAVE to. And so are all of you. It is just a matter of time. And guess what? As MSFT releases its service packs, it will get better and better and more stable because it is a the first time...in 20+ years...MSFT has made a true un-kluged operating system.
Bottom line. IF MSFT wants to make this deal, it's gonna happen
Posted by: Karl K | Feb 1, 2008 8:35:46 AM
QQQQ will get slaughtered today...MSFT AND GOOG tanking plus these shocking jobs numbers
Posted by: Steve Barry | Feb 1, 2008 8:35:56 AM
1 Crappy Search & Email Provider + 1 Crappy Search & Email Provider = Legitimate Threat to Google?
Posted by: Will G | Feb 1, 2008 8:36:12 AM
I don't think they will integrate the search algorithms. They will more likely kill one off (while talking about integration) and save significantly by cutting engineers. Msft should be able to make more profits from yhoo than yhoo could if only through cost savings.
Posted by: Beachin | Feb 1, 2008 8:40:05 AM
Barudjian (sp?) on CNBC is a great contrary indicator...he is spinning the jobs positive due to low wage pressure. When he turns bearish, time to cover shorts.
Posted by: Steve Barry | Feb 1, 2008 8:42:21 AM
Awhile back, just after Ray Ozzie took over at MSFT, they published a strategy letter including a focus on ad revenues from search. Their long-time strategy has been to buy a technology (86-DOS, Sybase) or company in the space they're interested in and refine it to become/overcome a market leader. Sometimes they buy tech leaders to kill off a competing product (FoxPro).
Compared to Microsoft, Yahoo has a more modern technology base for delivering large-scale web applications. Windows really isn't going to do it, and this may be a recognition of that on their part. Unfortunately for them, Google is light-years ahead of Yahoo on this, and huffing and puffing a little harder isn't going to help them catch up. It's sort of sad to see MSFT in their dotage.
Posted by: pmorrisonfl | Feb 1, 2008 8:42:34 AM
The two companies deserve each other. However, it does not matter because the sale/merger will not be approved. Microsoft has burned too many bridges and thumbed it's nose at too many regulators. It is a monopoly and it has acted like one and shown no remorse for it.
Posted by: wally | Feb 1, 2008 8:44:32 AM
the only company in all of tech with a cash hoard just pissed it away. portfolio theory would tell MSFT to distribute that cash to shareholders, let them buy YHOO at $19/sh IF THEY LIKE, not the gigantic premium. two failing companies. MSFT had a good idea 30 years ago
Posted by: scorpio | Feb 1, 2008 8:48:04 AM
dance, Monkey Boy, dance!
Posted by: scorpio | Feb 1, 2008 8:52:18 AM
I think it has something to do with Tivo's court victory yesterday coupled with a deal with CBS to develop a TV ratings system. Google is a large holder of Tivo and a potential future colaborator. It has been rumored that Tivo and Google are working on a TV on demand service. Anyway, Microsoft saw the future staring them in the face and they weren't apart of it. So, they went out and made themselves apart of it.
Posted by: Eric Thomas | Feb 1, 2008 9:02:37 AM
Your son is a fine Dancer
Posted by: TD | Feb 1, 2008 9:04:41 AM
Which one is the drunk and which the light pole?
Oh well, it gives Justice something to do instead of doing a RICO on the banks...
Posted by: Ross | Feb 1, 2008 9:09:02 AM
OK lets look at an analogy: GM buys Ford - how will that affect Toyota? This is clouding a very bad jobs number - and the talking heads - as dumb as they are - this will be a pre-superbowl game that might be better than the main attraction!
peachin
Posted by: la grande poussée | Feb 1, 2008 9:14:23 AM
Classic case (for many reasons mentioned above) of much more money than brains.
Marriage of mediocrity....I guess those stock options are worth something now.....Mr. Yang and Ms. Decker
Ciao
MS
Posted by: michael schumacher | Feb 1, 2008 9:16:42 AM
