Post bid, we have:
M $265B, G $162B, Y $44.6B.
Y/M = 17%, Y/G = 28%, Y1/Y0=60% premium

Msft is taking a risk, but strategically it’s a good risk. They’re getting clobbered by Google and they don’t “get” the internet the way Yahoo does. If done correctly, Msft gets rid of a competitor and the acquisition is accretive. If integration goes well, Msft is on a good path vis-a-vis Google and vis-a-vis their own internet offerings. If Msft is smart (and remember they’re dumb about the internet, so don’t be surprised if dumb happens) they’ll keep the Yahoo brand and integrate the Msn stuff and not the other way around. Once again, if Msft does it right, they’ll add direction and leadership to a management-challenged Yahoo. So in the rosy Msft scenario, Yahoo is worth maybe $60B to Msft and only $19B or less to anyone else. Indeed, to Google, Yahoo is worth even less, because search is redundant to Google. Sadly, the main value of Yahoo to Google is keeping it out of the hands of Msft. But they’d have to pay a price that is 28% the market cap of Google, which is outrageous. Msft pays 17% the current market cap of Msft, but will get complementary value and hopefully accretive value. And you can be sure that Msft has analyzed the acquisition across all lines of business. If Msft executes on integration they win big; maybe they actually compete with Google post acquisition in search and especially advertising.

The dilemma for Yahoo is that maybe the bid is “massively undervalued,” but only in their eyes, and the eyes of Msft. Google just rolls their eyes.

It’s like trying to help a friend who’s in denial and needs to go to rehab. Msft is willing to pick up the rehab tab. Maybe Google is too, but it’ll be an irrational expensive decision that’ll cost them $40B to $60B if they do. But maybe Yahoo is family. We’ll see.

A Google acquisition of Yahoo still might be the right decision culturally, and especially competitively. So the question is whether Google will let Yahoo twist in the wind. Google, the fair-haired son of the internet, may see a burned-out wayward step-brother with too many X chromosomes hanging from the tree rather than an upright, living corporate brother. Msft is willing to cut Yahoo down from the tree and expects to revive them and walk arm-in-arm down into the promised land. Corporate benevolence at its finest.

I’m not impressed by Jerry Yang’s reluctance. He also doesn’t have a passion for running the company himself, so I think he’ll make like Dave Duffield did at Peoplesoft and sell. I expect an all-cash deal as per http://www.texttechnologies.co.....cash-deal/, an increased deal price as per http://www.texttechnologies.co.....softyahoo/ , and more success than many commentators do as per http://www.texttechnologies.co.....synergies/ and http://www.texttechnologies.co.....nnovation/

CAM

All this bravado is driven by an emotional anti-microsoft sentiment in Silicon Valley rather then a rational understanding of where Yahoo! finds itself in the marketplace — a.) growing revenue at ~13% while the overall market is growing at 20%+ b.) losing search market share at an alarming rate c.) declining profit margins. d.) stagnating user traffic across key parts of the Y! network. e.) demoralized employee base

Where was all this bravado 2 years ago when the company was fat, lazy, and being mis-directed by Terry ?

Technology is all about the people, And with a takeover like this expect the talent of Yahoo to quickly dissipate. What Microsoft will get after it finishes the hostile bid will be only the people who couldn’t leave.

Yes Yes, Microsoft will get the brands and the products and the marketshare, and the software, But really what good is it without the people?