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Yahoo Weighs Microsoft Bid
Market Comment, 2/8/2008
Yahoo Weighs Microsoft
Bid: To Do, or Not To Do?
Apparently, the answer, at least for now,
is not to do. Microsoft’s unsolicited $44.6 billion offer (now valued at
$41.8 due to the subsequent drop in Microsoft’s share price) for the
ailing Yahoo has reportedly been rejected by its board. Given the
company’s faltering stock (at least until the buyout offer) some
investors might feel that the answer should be: “Yes! How fast can you
close?” There is still the possibility that Microsoft may up its offer.
Just days before Microsoft’s offer, the company announced that its 2008
earnings outlook was uncertain and that it was cutting jobs and
re-examining its operations – two highly defensive maneuvers and not the
actions of a company optimistic about its revenue growth. The Microsoft
offer of $31 per share (in cash and stock) came after months of
speculation. On the news, Yahoo shares jumped to $28.38 from $19.18. We
would have expected Yahoo to reply with a “yahoo!” But that did not
happen. Yahoo’s boilerplate reply was “we will take it into
consideration” and the company immediately sought an alternative suitor.
While many names were bandied about only one stood out as a viable
candidate – Google. Curiously enough, shortly after Microsoft made its
bid, Google issued a press release to the effect that “interested
parties may want to consider the anti-competitive nature of the merger.”
(Why not just call the justice department and ask them to begin an
investigation).
411: Number of The Justice Department Please?
In the days following
the Microsoft offer, Google publicly raised its objections, claiming
“that it could lead to less competition for Internet services and might
create a new monopoly.” Given Google’s dominant position, about 75% of
the paid search market worldwide, its
monopoly allegation would seem highly hypocritical. Although Google is
not considered a “friendly” suitor, just the lesser of two evils, its
proven prowess at generating revenues from Internet search traffic would
seem to be the cultural soul mate that might allow Yahoo to remain
profitably independent. Investors have long called for Yahoo to
outsource its own search advertising business (ironically, to Google).
Bye, Bye, Yahoo
Yahoo has failed to keep pace with the
changing marketplace. The Yahoo 2007 earnings release clearly indicated
that it had seriously fallen behind in the development aspect of its
business. Job cutting and strengthening operations have their place but
for Yahoo its problem resides at the top and has so for an extended
period. Yahoo has avoided outsourcing but it may be the best alternative
to a take-over by Microsoft or Google. Neither scenario may be appealing
to Yahoo’s management but time is not on its side. n
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