Yahoo/Microsoft: Much Ado About Nothing Until 'Google' Ceases To Be a Verb

As we all know, over the weekend, talks between Yahoo (YHOO) and Microsoft (MSFT) deteriorated. Microsoft has apparently taken its offer of $33 per share off the table. The market reacted Monday by sending shares of Yahoo shares down by 14%. The stock was down much more earlier in the day. Seems there is still some hope that a deal will still get done.

Word is the deal collapsed because Yahoo is asking for $37 per share, and Jerry Yang and David Filo are personally saying they want at least $38 per share for the company. Most agree that the $33 Microsoft was offering is a substantial premium to Yahoo's real intrinsic value.

The market seems to want these two companies to get together. But could this be much ado about nothing? I mean is the combined company really going to be able to compete with Google (GOOG) any better than each has on its own? Google's market share for web search in the U.S. rose in February to 58.7 percent, up from January and the same period a year ago, while Yahoo's, at 17.6 percent, was down compared with the same periods. Microsoft's MSN was 11.2 percent. Together, Yahoo and Microsoft only have half of Google's share in the space.

Google's present position as the market leader has only gotten more solidified over the years. Just over two years ago (August '05), Google only had a share of 37%, while Yahoo and Microsoft together had 45% of the market. Google is in a prime position no matter the outcome of the Yahoo/Microsoft merger. When "Google" ceases in being a verb, then it's time to worry.

Disclosure: I and the clients of Brick Financial Management, LLC owned shares of Google at the time of this writing.

Comments

[Josh Thompson:]

GOOG won this one, but with the rate of change, the question is will they win the next one. That is, when the world changes again, who will win the next time around.

2008 May 07 08:45 AM

[tresspass:]

Curiously, the author forgets, grossly, YHOO's holdimgs in the ASsian internet property , Alibaba which it owns nearly 40%---75% whose properties have not IPO'ed., and which are, ostensibly more valuable than the E-Commerce property already listed.

Oversight? I think not.

2008 May 07 10:38 AM

[globalmacro:]

The answer is that Google will. The foundation of Google's business is innovation. All of their business processes and the core values are directed towards adapting to change and innovating in the face of change. I think the author hit it right on the head: are all these discussions about Microsoft and Yahoo a waste of time? I think so.

2008 May 07 06:13 PM