Was a Private Equity Bid for Yahoo Thwarted by Microsoft ?

Last week, before the Microsoft (MSFT) deal was rejected by Yahoo’s Board, some interesting chatter was bouncing around NYC.

The latest rumor to make the rounds was that Yahoo (YHOO) was just about to announce a negotiated transaction for the sale of the company to an East Coast private equity firm. Then Microsoft stepped in the way. We first heard this story sometime between Mister Softee’s $31/share, $44 billion hostile bid, and this weekend’s rejection of that offer by Yahoo as an insufficient valuation for all of Yahoo’s properties.

The rumors of this now pre-empted private bid include the following:

-to be announced as early as February 5th;
-negotiated price was in the $23-25 range;
-some Yahoo! properties to be spun out to shareholders;

Note that Microsoft has been eyeing Yahoo for several years. The latest service pack of their unrequited ardor was back in May 2007.

While this remains unconfirmed by anyone willing to make an
on-the-record statement, it is well sourced enough that I suspect
there is sat least some degree of truth to it.

There have been other publicly available evidence lending some support to the rumors:

• CEO Terry Semel, long opposed any takeover, stepped down January 31.

• The apparent urgency to enact Jerry Yang’s 100 day plan seemed to have faded rather  quickly. Putting this "Key turnaround plan" on the back burner could have been due to leaving major restructuring to the new owner.

• The suddenness of the Microsoft offer may have come about due to the PE  bid. Mister Softee’s NY lawyers and bankers likely heard rumors, or even deduced, the likelihood of a private equity bid.

• Microsoft’s bid appears to have been calculated to preempt any further bidding or acquirers from becoming involved. With Yahoo’s stock closing under $20 on January 31, a bid with a premium of "just" 25 or even 30% might have left room for another bidder.

• Microsoft appears to have taken a "time-is-of-the-essence" approach. They obviously know that each and everyday, Google’s lead widens over both companies. From both a valuation and practical perspective, Microsoft made an offer that is all but impossible for another firm to top, and facilitates the most rapid acceptance by Yahoo.


With the Writers Strike now all but settled, we still are months away from fresh television content. Until that happens, we will just have to make do watching this technology soap opera play out . . .

Category: Corporate Management, M&A, Valuation, Web/Tech

Global Financial Crises, Part II: Norway 1987

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5 Historical Economic Crises and the U.S.

Earlier this week, I received a copy of a paper co-authored by Carmen Reinhart of the University of Maryland and Kenneth Rogoff of Harvard University, titled Is the 2007 U.S. Sub-Prime Financial Crisis So Different?.

Each of these authors have rather distinguished affiliations. Reinhart is with the NBER, the group whose Business Cycle Dating Committee officially marks the beginning and end of Recessions. And Rogoff is an adviser to the John McCain, who has (almost proudly) professed his economic ignorance.

Yesterday, in the NYT, Paul Krugman linked this paper to an interesting and perhaps unique factor regarding the 2008 presidential contest. None of the remaining 3 contenders — McCain, Obama or Clinton — are economic ideologues. No supply-siders in this group, no one from the Democratic old school.

If it turns out that the candidates are pragmatic centrists, more focused on problem solving than ideological belief system, it would be a good thing.

This is especially true, if the authors of the paper are correct. Why? If the present situation plays out as they expect, we are going to need all of the problem solving skills available. You see, Reinhart and Rogoff draw parallels between the current U.S. financial woes and five previous financial crises. All five of these were “associated with major declines in economic performance over an extended period:”

- Japan (1992)
- Spain (1977)
- Norway (1987)
- Finland (1991)
- Sweden (1991)

Of course, none of these are identical to the present 2008 USA, economically, culturally, or politically. However, when one takes a closer look, some of the major parallels are a cause for concern.

The Chronicle of Higher Education did just that. In reviewing the Reinhart
and Rogoff
paper, they focused on the parallels to the Japan crisis.

Like Japan et al., the United States has seen:

  • A steep rise in housing prices during the four years preceding the crisis. (The U.S. rise was more than twice as large as the average of the other five.)
  • A steep rise in equity prices. (Again, the U.S. rise was larger.)
  • A large increase in its current account deficit.
  • A decline in per-capita growth in gross domestic product. (In this case, the U.S. situation doesn’t appear as bad as in the five predecessors.)
  • An increase in public debt. (Here again, the U.S. situation isn’t as bad as in the historical examples – but Reinhart and Rogoff add that “if one were to incorporate the huge buildup in private U.S. debt into these measures, the comparisons would be notably less

The authors’ conclusion:

“Given the severity of most crisis indicators in the run-up to its 2007 financial crisis, the
United States should consider itself quite fortunate if its downturn ends up being a relatively short and mild one.”

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