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Microsoft Takeover Bid for Yahoo!

Friday, February 01, 2008 | 06:34 AM

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