Microsoft/Yahoo Deal Should Go Through

I was going to buy Yahoo! the other day. Mark and I were emailing. I was asking how much Yahoo!'s core search business was worth if it was given over to Google. He though maybe as much as $9/share. I looked into the value of Yahoo! Japan and Alibaba. I left a comment on Paul Kedrosky's blog post about Yahoo!.

But of course I never got around to buying the stock.

We all knew this was coming. Yahoo! was cheap. Too cheap. And a mess. Rats were leaving the sinking ship en masse. It was not sustainable. Something had to happen.

And so the most logical thing has now happened. Microsoft has swooped in with a $44.6bn offer to buy Yahoo!

The price offered is an ~70% premium to the closing price last night. This deal will happen unless another strategic wants it (News Corp?). Because at that price, no financial buyer can make the deal work, particularly in this financing environment.

Comments

[Long-ShortGuy]

...whereas MSFT can since its profitability and stock price are still strong, because businesses aren't yet read to move to open source software, Apple's superior OS and/or Google Apps.

But Windows and Office are decaying, and MSFT is making no headway on the 'Net. So it needs to use its cash flow and currency to bolster its position, before it's too late.

The question now is whether one broken company can fix another broken company.

[Lisa]

"Because at that price, no financial buyer can make the deal work, particularly in this financing environment."

Which begs the question: is paying a 70% premium for YHOO a wise use of Microsoft's cash?

[Frank Li]

NWS + Dow Jones + YHOO

Now that's an interesting idea. And Murdoch pays up.

[Tom B]

"The question now is whether one broken company can fix another broken company."

AOL /Time-Warner.

Just look at Ballmer. Does this look like a man with even the tiniest shred of vision or competence?

[Victor J.Cook, Jr.]

And that's the $45 billiion question of the day, Thomas. The underlying problem with this merger is the lion’s share of the redundancies Mr. Ballmer refers to are in his own backyard.

In 2006 it cost Microsoft 18.8¢ more to generate a dollar in sales than it cost Google. Multiply that 18.8¢ times its sales revenues and you find that Microsoft had an $8.3 billion dollar problem. That's how much the company was over-spending on enterprise marketing in 2006 compared with Google. And it cost Yahoo 15.1¢ more to generate a dollar in sales than it cost Google. Yahoo had a $1 billion dollar problem. Combined there were almost $10 billion in redundancies at the companies.

The combined R&D spending ($7.4 billion) and Selling, General & Administrative ($16.3 billion) expenses of MSFT and YHOO totaled $23.7 billion in 2006. So their redundancies relative to Google amounted to over 42% of total spending. And over 85% of those same redundancies belong to Microsoft. These could be reduced without shelling out $45 billion for Yahoo. For the details see my April 16, 2007 article “Microsoft’s $8 Billion Problem” at www.customersandcapita...

[nitadmin]

what will happen to Zimbra. Which Yahoo acquired recently. I don't think Microsoft will support a software which competes against its very lucative Exchange and Sharepoint products.