Microsoft 'Wins' Facebook Derby

Will Microsoft's (MSFT) backing of Facebook be akin to the day when Yahoo! (YHOO) backed Google (GOOG)? That was undoubtedly a turning point for Google and maybe Microsoft’s agreement to invest in a minority stake worth $240M valuing Facebook at $15B might mean the same thing.

All I know is that MSFT is showing some backbone - perhaps foolishly - by not letting Google outbid it, though let’s face it: Mark Zuckerberg is not eyeing MySpace (NWS) in his cross hairs, he views Google (right now somewhat naively and foolishly) as his main target, and he’s betting that MSFT can help him beat Google in all things Web. Will that happen? Who knows, but clearly he does not view MSFT as a foe, but he knows that Google can on a whim destroy Facebook in many ways, and some of those we’ve outlined previously.

Let’s just hope that Facebook does not totally close the door on a potential exit with this deal, as we talked about yesterday.

Anyway, why $240M? Here’s why: rumor has it that Facebook shareholders own less than 27% of the company (according to Valleywag), so a $240M investment on a post-money investment of $15B implies MSFT gets a 1.6% stake, not much… which is key for shareholders not to slip below 25%. I’m guessing on all of this, but it would make sense… despite what some VCs say about there not being actual minimum holdings, psychology is a big factor in driving valuations…

This is somewhat meaningless or very meaningful, but MSFT finished up 1.13% for the day, after taking a sharp turn upwards late in the trading day… at which point the Street knew that Facebook had gone with MSFT and not Google.

Then, after the market close, MSFT is up 0.93%… meaning that it could be argued that by getting Facebook’s business, MSFT’s stock went up 2%, or given its $290B market cap, over $5 Billion.

What did that cost them? $240 Million.

Say what you want but in the school of financial engineering, this deal might look like a winner even if the $240M commitment and the $15B valuation seem awfully steep.