This morn, all eyes are on the takeover proposal, in a letter from Steve Ballmer to Yahoo’s Board of Directors, stating an offer of $31 in cash or 0.9509 of a share of Microsoft common stock per share for Yahoo (YHOO). The total deal valued at $44.6 billion — a huge 62% premium to Yahoo’s closing price of $19.18.
The most interesting part of this is that Mister Softee seems to have waited until Google had its first bad earnings report — missing the earnings consensus by 2 cents, and perhaps looking in their eyes, vulnerable. Perhaps it was coincidence, but the timing looks fortuitous.
A few questions immediately pop up:
Why is Ballmer & Co. paying such a big premium? Does this imply the entire Tech market is hugely undervalued — or is Microsoft (MSFT) desperate to catch up with Google (GOOG)?
And since Mister Softee was so desperate to stop the Google/DoubleClick deal on Anti-Trust grounds, it makes me wonder if there will be any legal issues between a marraige of Yahoo and Microsoft. Obviously not for search — their combined market share is still tiny compared to Google. But consider what these two companies are: the biggest software maker now wants to get together with the biggest web portal. That could certainly raise some valid anti-trust issues.
What is not known yet is how the two different search technologies — Yahoo’s Panama, and Microsoft’s — will integrate.
I’ll go even a step further: Mister Softee’s biggest cash cows –
Windows and Office — look shakier than they ever have. There are real
competitors for PCs (Apple, Linux) and lots of free or nearly free
office software (Open Office, Google Apps). I assume Microsoft is
projecting out current trends 5 and 10 years; they might truly believe
that if they can’t compete in the online search/advertising space, they
are in trouble.
Here’s the ironic part: The 2 most visible losers in the search area
may be getting together — and somehow, that’s worth 150 point swing to the Dow futures.
I guess the negativity isn’t quite as excessive as some people claim!
Some recent, related headlines:
• Yahoo Says Former Chief Semel Steps Down as Chairman (Bloomberg, 1/31)
• Google posts 17% profit gain, but shares slide lower (Marketwatch, 1/31)
• and the WTF headline: Google’s Loss Is Murdoch’s Gain (NYT’s Bits)
Microsoft Letter to Yahoo!
PRNewswire-FirstCall, February 01, 2008: 06:30 AM EST