Microsoft + Yahoo: It's all about the GOOG
Posted
Feb 01 2008, 10:40 AM
by
Kim Peterson
So Microsoft knocked on Yahoo's door this morning, proposing marriage and holding a $44.6 billion bouquet to seal the deal. The unsolicited offer amounts to $31 a share -- a 62% premium above Yahoo's stock price yesterday.
In a letter to Yahoo's board, Microsoft CEO Steve Ballmer says that the online business of the two companies could combine "to create a more effective competitor in the online marketplace."
In other words, it's all about Google. That pesky search engine company has become an industry giant, gaining marketshare and revenue and rolling out new online services all the time. If we can't beat Google separately, Ballmer says, let's join together and crush it!
No word yet on Yahoo's reaction. I'll bet the board is squirming now, though, because it really doesn't have much choice. Does Yahoo keep going as its own entity, flailing in a business it helped pioneer, struggling with staff layoffs, a disappearing market cap and declining revenue and profit growth?
I think $44.6 billion is a steal for Microsoft. And yes, there are lots of redundancies between the two companies, particularly in core online services like mail, messenger, search and social media. But MicroHoo would immediately get to work on knocking out a killer advertising platform, one that could cut Google down to size. That's where the money's at these days, and that's what this deal is all about.
Like any unsolicited offer, Microsoft's actions have the potential to start a bidding war for Yahoo. I can only see two companies that might go for it: Google, in a purely defensive move, and News Corp. A bidding war seems unlikely, though. Microsoft is playing this one well.
Yahoo shares have soared more than 45% on the news today and are trading at $28.13 as of this writing. If you had listened to my buy recommendations last month (here and here) you'd be sitting pretty right now. Google shares are down some 9%.
Here's what others are saying about today's news:
Wired: "Analysts have suspected such a deal could happen all along, but we were skeptical because a) we thought Jerry Yang wanted to turn the company around on his own, and b) because of what will likely be a devastating culture clash between the evil empire and the purple and gold empire."
Jeff Jarvis: "This is just as well for Yahoo, which had no strategy, really. They’d gone as far as they could with the old-media model, as exploited by the last CEO, former movie-studio head Terry Semel. Yahoo cofounder Jerry Yang started saying the right things about turning Yahoo into a platform, but it probably would have taken years to turn his culture around. They were too used to operating like a movie studio or publishing house."
Silicon Alley Insider: "This is a brilliant move by Microsoft--a big premium dangled in front of battered Yahoo shareholders, but a price that would have seemed absurdly low as recently as six months ago."
Mini-Microsoft: "If the buy goes through, it will be one huge turning point for Microsoft: I think we'll either turn it around brilliantly and our mega-investment will be worth it, or we'll be turn asunder and revert back to our core cash cows."
Paul Kedrosky: "Google is dominating a tipping market -- search and online advertising -- and consolidation among competitors is about the only rational response. A combined Yahoo/Microsoft would become a truly material piece of the ad market, in excess of 40%, which is enough for it to finally offer Google a credible threat."
Andy Beal: "Will buying a company that has failed to stand up to Google in any way, help Microsoft–which has equally poor performance. Do two losers, make a winner?"
Danny Sullivan: "But the short story is this. Search is important, and Microsoft has failed to build much less maintain search share while Yahoo has held steady against Google."
Seeking Alpha: "Microsoft must be sensing that it has one big shot to catch Google in the search wars and Yahoo is the best way to make it happen. On the surface, Microsoft’s bid is out of character, but given acquisitions like aQuantive it’s clear that CEO Steve Ballmer is thinking a little like Oracle CEO Larry Ellison."
Disclosures: I don't own shares of any companies mentioned in this post. And while Microsoft owns this blog, Microsoft does not control, censor or otherwise have any editorial influence over what I write.
