When we conducted our own analysis of the shareholders that owned both Microsoft (MSFT) and Yahoo (YHOO), we concluded that ultimately, they would be in favor of a higher YHOO.
Some said “not so” - because major institutional investors would lose out more on their MSFT stake than they stood to make on their YHOO shares.
How short-sighted. Friday, Valleywag commented:
At Capital Research & Management, an investment management firm and longtime Yahoo shareholder, media-savvy stockpicker Gordon Crawford has raised its stake in the company to more than 16 percent, from $4 billion to $6 billion at current prices, some time in the past three months. The stock’s chart strongly suggests that his buy came after Microsoft’s bid sent Yahoo shares soaring. What that means: Crawford believes Microsoft will succeed in its bid for Yahoo, but only after raising its price. That’s a fair turnabout from his earlier concerns that a higher price for Yahoo would mean losses from his firm’s stake in Microsoft that outweighed gains from its Yahoo position. Capital’s huge bet on Yahoo means that CEO Steve Ballmer’s hand is weakened in resisting calls to up Microsoft’s offer.
I am not sure on that conclusion at the end, however.
What I reiterate is the following, alone:
- MSFT will remain in a rut, trading between $30 and $40 and not beating the market over time (ie. it might go above $40 but the rate of return relative the market will be inferior).
- YHOO will remain a poor man’s stock as Google (GOOG) continues to outgrow it.
But combined, Microsoft/Yahoo/aQuantive(AQNT)/etc. becomes a $400B machine. This is why a savvy media investor such as Gordon Crawford would double his stake in YHOO. In other words, yes, MSFT could very well end up paying a bit more for YHOO, but it’s not because it has to, it’s because it’s best for all parties to consummate this deal and focus on business… which is something that becomes impossible in deal purgatory.
Disclosure: Long YHOO. Used to think this deal would get done at $50B, but with YHOO’s missteps, I now figure it might be at $44.6B - $50B, closer to $45B. We shall see.
