A Quagmire Of Ineptitude? – Yahoo | Microsoft | Google | AOL

 

I try to avoid blogosphere discussions unless I have something substantial to add. I don’t have holdings in any of the companies embroiled in the current takeover / acquisition debate, and to be perfectly honest I am not sure if any of the combined entities that eventually emerge will be able to compete with Google on their home turf.

I am however an interested observer, and I have a number of questions buzzing around in my head that remain unanswered.

This is more a collection of “what ifs” than anything else, discussion points that have no real factual basis, from someone with very minimal knowledge of how the financial markets work.

Microsoft Should Only Increase Cash Offering

Yahoos seem to want $40+ per share, which would effectively value the stock at close to a 7 year high. If Microsoft stock was similarly valued based upon their own 7 year high (which wasn’t over 2 years ago), then the original equivalent of $31 per share in stock would be very attractive.

Most of Yahoo’s investors are institutional, possibly long term investors, who also have holdings in Microsoft, Google and Time Warner.

For me the strong play from Microsoft would be to offer $35 per share cash, or keep the existing $31 stock equivalent based on valuations the day it was made public.

Have some kind of firm “either/or” clause, and some additional guarantees based on stock performance for those that choose the stock.

My gut feeling is that many of the institutions want some kind of deal, there just has to be a viable alternative for those Yahoo investors who still regard Microsoft as the big Satan.

An increase in the cash offer, and a slight rewording of what is on offer could well reduce the amount of cash that Microsoft have to fork out rather than increase it.

Yahoo – AOL

It is funny, a Yahoo <> AOL deal would essentially create a monopoly situation in Email and Instant Messaging worse than a Yahoo <> Microsoft deal, so I am sure we can expect another post on the Google blog objecting to such a merger.

The synergies between Yahoo & AOL are such that the sum of the individual parts would be greater than the whole, thus a merger would be a defensive move rather than one that would stimulate the kind of potential growth Jerry Yang is predicting.

Microsoft To Buy Google?

This is never going to happen, but just to compare notes

  • It would create the best shareholder value
  • It wouldn’t create any new monopolies in a specific vertical
  • They are polar opposites, but the combined company would have so many synergies, it would be frightening

Put Larry and Sergey in charge of the combined entity, open source not only all Microsoft products, but also all Google’s. In some way get rid of software patents.

The crux? Back to the old browser wars – competitors to Internet Explorer rely on Google for financing.

Previous $35 Bid?

Even if Microsoft previously bid $35, that was based upon their own stock price at the time of the bid, which was above $34 per share.

Poison Pill or Suicide Pill or Sandbagging

I know so much about investment, I had to look up all the terms, browsing around on Investopedia

Ultimately I know that I currently use Yahoo and Microsoft online services so rarely, both must be doing a lot wrong.

You are never going to get a deal where the synergies are as compelling, but equally as impossible as a Microsoft <> Google merger, so you have to look for second best.

Google have an unhealthy share of my online attention, thus I would like an alternative. I am not sure forcing Microsoft to pay more is good for the long-term future of a combined company.

What I don’t appreciate is poor reporting – I can see in the numbers that Microsoft isn’t actually offering less than it did previously as far as a stock deal, and this is more to do with timing with Yahoo’s Annual General Meeting than Microsoft taking advantage of a drop in share price that has affected all major stakeholders in the sector.

A Quagmire Of Ineptitude?

My brain is the one which is bogged down in thoughts about things I really shouldn’t be thinking about, thus writing something hopefully will clear the mind and I can get on with something constructive. Maybe others will do the same or at least improve the quality of their reporting so I don’t have to think too much.

Microsoft <> Yahoo doesn’t seem like a perfect deal, but I can’t see another deal stimulating enough growth to offer Google any competition.

Update

It looks like Microsoft have responded to being given the cold shoulder – I suppose it adds a little insult to injury that Microsoft press releases seem to always appear on Yahoo news first, and that is the source that often appears on Techmeme.

 

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Comments

  1. says

    This will be a defining moment in the history of the web. Remember when Hotmail was bought by Microsoft? Oh, that’s right… not really that big of a change.

    This however will be different. This will increase Microsoft’s influence on the web, for it’s products and brand.

    • says

      David I don’t know how this compares to Hotmail, as all the major players are fairly diversified now, though with different shares in each sector.

      I can appreciate that some kind of change in the balance of power would be beneficial, but it is hard to quantify.

      More than anything I just have things buzzing around in my head that after 10 days still haven’t been answered by the experts providing the coverage and speculation.

  2. says

    I think Google would welcome a AOL-Yahoo merger. The thing that worries Google about Yahoo-Microsoft (I believe) is the huge cash position Microsoft has and the huge web traffic Yahoo has. That in combination with really smart people (both companies have that) and some serious long term thinking could be risky to Google. But really I think Google’s main risk is nothing from outside but rather bad decisions and/or execution by Google. Huge amounts of money (like Microsoft has) however, make it possible for you to invest in 10 huge hopes to win against Google and even if they all fail you still have money to try number 11. Few others can afford that.

  3. says

    I think Google is being smart in playing this game (trying to make intelligent arguments that support their interests) for what they can. I don’t really buy the risk though. I wish Yahoo (and AOL for that matter) had done a better job so there were more strong very large internet players. As it is I figure Microsoft is making a very wise move. And while people like to criticism Microsoft (including me) they do pretty well. They couldn’t make several billion dollars a quarter if no-one found any value in what they do. And they should be worried. I use Ubuntu, Open Office and MySQL (which are free excellent alternatives to Microsoft’s biggest money makers). And I think many more will follow to those or similar products in the future.

  4. says

    It is funny, a Yahoo AOL deal would essentially create a monopoly situation in Email and Instant Messaging worse than a Yahoo Microsoft deal, so I am sure we can expect another post on the Google blog objecting to such a merger.

    Actually I think a MS Yahoo deal would be worse overall in IM and Email. If you look at international numbers I don’t think too many people really use AOL outside of the states. For instance, every single Chinese person I know has an MSN email/IM address and uses them. In fact most of them use the msn space feature (which should have been myspace or facebook if they’d only used it right!!).

  5. says

    Andy, you’re spot on re the cash part. As I pointed out in http://www.texttechnologies.com/2008/02/10/microsoft-yahoo-cash-deal/, going all-cash for Microsoft is easy. The deal synergies are also broad. http://www.texttechnologies.com/2008/02/03/microsoft-yahoo-synergies/ was my most extensive write-up of those.

    A big key here is enterprise/public-web integration. Microsoft has been very slow to cash in on that possibility, but there’s still some time left for it to get in gear. (E.g., my posts on future-Twitter, but I’ll refrain from dropping yet another link …)

    CAM

  6. says

    I read in the Metro UK today that the next move from microsoft would be to go directly to the shareholders and offer the original bid if the next one is turned down.

    Food for though

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