Is Microsoft’s Bid for Yahoo Too Cheap?
by Kara Swisher
Posted on February 1, 2008 at 2:39 PM PT
While the conventional wisdom around Wall Street and elsewhere today is that Microsoft’s bid for Yahoo is impossibly rich and shuts out all possible competitors, that’s certainly not the feeling around Yahoo.
“This deal’s not going to get done at that price,” said one senior exec. “The reason Yahoo stock is so depressed is all about lack of leadership and not about potential. Microsoft is taking advantage of that.”
Which, I have to say, is a pretty savvy move on the part of ultra-aggressive Microsoft CEO Steve Ballmer.
Still, such behavior might cost him, especially since Yahoo brass were not happy about the hostile bid. Said one person close to the situation: “Microsoft might win this unsolicited battle, but they are going to pay a lot more for that victory.”
They might have a point. Yahoo shares drifted below the dangerous takeover line–$20 a share–this week.
That’s what prompted Microsoft to move, said sources, because a $31 bid looked hefty in that lackluster light.
Indeed, some think that if the company was managed more aggressively–and that has been a big if at Yahoo for far too long now–Yahoo shares could be trading closer to $30 a share.
And that makes $31 kind of a bargain.
It’s not such a leap of faith, in fact.
Many mid-level and senior Yahoo execs have told me that CEO Jerry Yang’s too-cautious approach has been the problem and that there was pressure building for a change.
Many were unhappy, for example, with his uncertain performance when announcing Yahoo’s quarterly results earlier this week and felt his less-than-confident move to make cuts via layoffs was badly bungled.
Most suggested that more aggressive consolidation and a stronger influence of the board were coming. Some board members, in fact, have been in touch with senior staff recently to gauge the mood internally.
In addition, some were pushing for more radical shifts, including outsourcing of its search-ad business. In fact, Yahoo has been in talks with Google off and on, including recently, about taking over parts of its search monetization business, a move that surely would have sent its shares soaring, given that it would have cut costs and gotten a big guaranteed revenue stream.
“Even with all the weakness and patience from investors running out, we still had some options,” said one exec. “Now, Microsoft is making us look like this is our only option.”
Still, many execs also welcomed the bid too. “Finally, it might be the catalyst we needed to bring true change to the company,” said another exec. “Of course, it might be too late.”
Please see this disclosure related to me and Google.
Comments
The outcome of this unwanted and unsolicited takeover is as predictable as Apple introducing a 3G iPhone in 2008:
1.) Microsoft’s offer of $44.6 billion will be accepted by Yahoo shareholders this year (who cares what the board wants, it the shareholders that get to decide). By the way, IMHO, Yahoo isn’t worth it!
2.) The purchase will take 9 month to a full year to be approved because it has to go through both American and European Anti-Trust Regulators (with the Europeans giving M$ some serious hoops to jump through before its over).
3.) During this time, the best and brightest of Yahoo’s engineers/developers/execs/etc…, will leave the company before being absorbed into M$.
4.) Within 12 to 18 months after the purchase of Yahoo is final, yahoo.com and any other Yahoo service (i.e. Flickr,del.icio.us, etc..)referring to the name “A Yahoo Service” will be nothing but a faded memory and/or bad after taste in the mouths of consumers and M$ execs. There will be no YaSoft, or MicroHoo or any other evil hybrid of this hostile takeover. There will only be remnants what was once Yahoo coding scattered around whatever misguided online effort and poor branding M$ can come up with next. MSN, Live, etc.. it will all lead to nothing.
5.) Over 90+% of Yahoo technology utilizes LAMP or some combination thereof. Anyone who thinks M$ will continue to run Yahoo code on PHP/Linux/FreeBSD/Apache/MySQL and not port this code over to M$ services has obviously never heard of the story of “Hotmail”.
6.) Within 2 – 3 years, M$ will be right back where it started, being no real threat to Google’s AdSense, it will have carved out another 10% or so of market share of “online advertising” or whatever the popular nomenclature of the hour is.
7.) Microsoft becomes cash poor after this deal, and gets 15-25% of the online search market, and that’s it (that’s right, I expect Google’s market share to grow and M$’s to shrink after the inital 30% share post purchase). All for $40+ billion.
Conclusion: If I was an M$ shareholder, I’d be in SELL SELL SELL mode until I was clean and free of that nasty MSFT stock
Oh yeah, a footnote to this story.
Anybody else thinks its hilarious that Terry Semel stepped down and left Yahoo as Chairman of the Board yesterday, one day before M$ offer became public, with a consolation package of $500 million and a Street named after him. http://valleywag.com/351420/te.....-after-him
All of that after driving Yahoo into the giant garbage heap its now wallowing around in.
Guess it pays to be an admirer and friend to the Scientologists! http://www.dagnall.net/photo/b.....1-7478.jpg
Posted by Patrick McIver at February 1st, 2008 at 8:14 pmYahoo is trading at a ridiculously high p/e. Microsoft stock took a 6.6 % hit when they anounced the potential takeover, eliminating about 50 billion in market value. I think at this point it’s a bad idea for both.
Posted by rod sandcones at February 2nd, 2008 at 8:44 am