Microsoft Played Brilliantly, Hands Off Negotiations to Yahoo Shareholders

This blog has been rather quiet recently, but things should pick up shortly. I am in the process of relocating and other things have limited my time lately.

This Microsoft (MSFT), Yahoo (YHOO) story just can’t get any more interesting. Now that MSFT has walked, what can we expect? Well, YHOO’s management team looks like fools, not only for misplaying their hand, but also for taking very lightly their fiduciary duty. Expect YHOO shareholders to revolt. I would not at all be surprised if YHOO is forced to do the deal, because the board really can not say anything to shareholders that remotely convinces them that the company is worth $37 per share or more. When the market thinks you are worth about $20 and someone offers you $33, you take it. End of story.

Even if MSFT really is out for good, this whole thing will help YHOO because it will have to work hard to make meaningful changes now that they balked at such a great buyout offer. The problem is that morale at Yahoo is probably at rock bottom right now, so any sense of renewed independent creativity is easier said than done.

I am still pretty surprised a deal did not get worked out by now, but I don’t think we’ve heard the end of it. If a deal does get done at some point this year, there will likely be an excellent entry point for MSFT created, so investors should keep that mind as this saga continues.

Anyway, the blog will get livelier soon, you have my word on that.

Full Disclosure: Long MSFT and YHOO at the time of writing

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2 Thoughts on “Microsoft Played Brilliantly, Hands Off Negotiations to Yahoo Shareholders

  1. Bobby Kolev on May 5, 2008 at 7:43 PM said:

    Why should there be an excellent entry point for MSFT if a deal work out?

    9 out of 10 large mergers don’t work well for the accuiring company’s stock (I read that somewhere, possibly even here) and if MSFT had a hand at handling online content companies they would have done so with MSN.

    Yahoo is right now at a point where morale will be low for some time regardless of whether they remain independant or get bought after all.

    BTW the bottom and bounce of S at the news of repeating DT interest is no less interesting, at least for those of us with positions there 🙂

    Thanks for keeping up.

  2. Chad Brand on May 6, 2008 at 5:17 AM said:

    I agree that the odds of a MSFT/YHOO deal proving to be wildly successful several years later are remote. Tech mergers do have far lower success rates than other industries, for some reason. I suspect culture clashes are a big reason.

    MSFT likely goes to 27/28 if they pay $33-$34 for YHOO. AT that price, you are getting MSFT for ~14x forward earnings. In my view, that is a very cheap price, for a company that can growth profits double digits per year.

    And that assumes no benefit whatsoever from the YHOO deal. However, the YHOO deal would certainly be accretive to MSFT earnings. Would their market position be any stronger together vs apart? Probably not, but it could still be accretiive to profits due to huge streamlining of duplicate operations, and earnings (not search market share or other industry metrics) drive share prices.

    As for Sprint, they have been a takeover rumor for years and nothing has really happened, so I don’t think that is quite as interesting as what has transpired with MSFT/YHOO over the last couple of years, but that’s just a matter of opinion.

    Actually, since Sprint paid $35B for Nextel a few years ago, perhaps that is a good story given Nextel’s demise. I actually owned NXTL back then and they were doing very well. Technology really just passed them by…. walkie talkies don’t look so cool now compared to an iPhone…

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