Tracking the Microsoft-Yahoo Deal 'Spread'

One month ago Microsoft (MSFT) announced its unsolicited bid for Yahoo (YHOO). It pegged the bid at the then-effective price of $31, but it also put it at a specific ratio of Microsoft to Yahoo shares. If you used the ratio the current value of the bid has tumbled to $25.86, which is why Microsoft made clear again today that it is sticking to the value of the original offer, or $31 per Yahoo share.

Let's look at the spread between Yahoo's share price and the $31 pegged price offered by Microsoft. A big discount would suggest that the market doesn't think the deal will be done; while a big premium would suggest a raised bid or another bidder. A lock at $31 would make it a done deal, at least from the market's point of view.

Here you are, and it's a discount to the price, all the way:

As you can see, there is stubborn and growing deal discount out there. The market is as skeptical as it's been since the bid was announced, despite Steve Ballmer's confident noises today that his company would stick to the proposal, and make things happen at current prices. Not only that, the market has taken much solace in his confirmation that discussions between the two companies are ongoing.

Comments

[Kunst:]

I have puts on YHOO and calls on MSFT. This is a dumb deal.

2008 Mar 03 11:00 PM

[Tom B:]

"I have puts on YHOO and calls on MSFT. This is a dumb deal."

Yup. In spite of all the MSFT-funded "astroturfing" in the business press.

2008 Mar 04 09:13 AM

[User 173256:]

I think you didn't calculate the offer price correctly, read it again. I believe it is more along the lines of the average of .9509 shares of MSFT and $31. So for example on March 3 close, the deal price was about ((0.9509 * 26.99) + $31) / 2 = $28.33 whereas the YHOO share price was 27.77. This is a discount of only 2% rather than the 12% shown on your chart.

I hope these numbers are accurate, that is the way I understand the deal.

Checking these articles and the reply posts it is fairly humorous the emotional slant of the anti-MS posting, and it distorts the facts. Are we here to make money, or are we here to get emotional, someone needs to decide.

2008 Apr 04 08:31 PM