Microsoft Takeover Bid for Yahoo!

A 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.

The most interesting part of this is that Mister Softee waited until Google had its first bad earnings report -- missing the earnings consensus by 2 cents, and perhaps looking in their eyes, vulnerable.

A few questions immediately pop up:

Why are they paying such a premium? Does this imply the entire 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 issues between Yahoo and Microsoft. Obviously not for search, but consider this: the biggest software maker is now getting together with the biggest web portal. That could certainly raise some anti-trust issues.

What is not known yet is how the two different search technologies -- Yahoo's Panama, and Microsoft's -- will integrate.

Here's the ironic part: The 2 most visible losers in the search area may get together -- and somehow, that's worth 150 points to the Dow?

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

Comments

[Tom B]

This is like trying to catch the wind in your hands; they may buy Yahoo, but the VALUE of Yahoo will drop to zero. I've had a Yahoo Email account for something like 15 years. I use Yahoo as my homepage. I have a Flickr account. None of these will be true if the deal goes through. MSFT destroys everything it touches-- look at HotMail; Spyglass; Bungie. How could anyone ever expect their accounts to be secure, when MSFT has no credibility on data security issues, for one thing?

Maybe the EU will slap a big fat "Non!" on the deal. We can hope. I expect the little puppy dogs we call "leaders" in Washington will just roll over on their backs and drool.

[Victor J.Cook, Jr.]

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...

[Chungst]

It's a brilliant move by MSFT given that the average takeover premium is about 30%. By making such a bold move (hence the sizeable premium), it sends a strong signal to Yahoo!'s board that this is a compelling offer and to send a signal to would-be acquirers that MSFT is quite serious and means business.

When you look at the anti-takeover defenses, a 62% premium is very difficult to argue against and given that MSFT has the means to complete the deal, there's not much ammo left.

Plus, the timing is great since Yahoo! is facing weakness in it's operations.

[Tom B]

" a 62% premium is very difficult to argue against"

BUT-- Yahoo can gain 62% (or more) by just surviving through the recession. And without bending over to Redmond. The BoD would be stupid to accept.

[fxtrader07]

yahoo is not down because of recession or fears thereof.
it's down because it is falling more and more behind google.
and nothing is to be seen that can stop this.
msft greatly overpays for a loser who is in decline for the past 6years.
if yahoo's shareholders or bod reject the deal they are simply stupid