I was heading out the door this (Friday) morning when I saw the announcement of Microsoft’s $44.6 billion offer for Yahoo. I wasn’t able to blog it, although in between (during) meetings I was able to surf some of the news.
The two obvious points were first, this has been rumored since May 2007 so it’s no surprise. Second, the only reason is because neither has been able to compete with Google on its own, and Microsoft is not yet willing to cede Total World Domination to the GOOG. The Microsoft quote (reported by MarketWatch) was none too subtle.
'Today this market is increasingly dominated by one player. Together, Microsoft and Yahoo! can offer a competitive choice.'
BTW, the MarketWatch package (13 stories by Friday afternoon PST) was the best I saw. The WSJ was nearly as good, but a little too dry while MarketWatch was more sharp (but then they have John Dvorak). Plus MarketWatch is free, and you know how I like free.
I think the deal is likely to happen, but the market isn’t quite convinced. The stock closed at $19.18 Thursday and $28.38 Friday, an 8.5% discount to the $31 offering price. The math suggests there is only a 78% chance the deal will happen, but it could also be that people don’t like the half-stock side of the deal (being bearish on MSFT stock).
Or perhaps the shareholders who bore persistent losses just gave up and dumped their shares on the good news. The stock closed at $33.63 on Oct. 26 (and briefly broke $34 the next trading day), so Microsoft’s premium this week is a big discount from three months ago. Certainly I agree with the consensus view (e.g. in the NYT) that no one will pay more.
Rushing out the door this morning, I made a brief note on four points to investigate:
- David Filo and Jerry Yang get $4 billion (9%) to start their next company or become philathropists. (Filo and Yang used to own 8% each but I guess they either sold or got diluted). Obviously they wouldn’t stay, but they (especially interim CEO Yang) get the monkey off their back to turn the company around — trying to win with what seems to be an unwinnable hand.
- The culture should be a snap. In fact, the suggestion of a parallel to AOL Time Warner is asinine. I study tech culture for a living, and these are two strong engineering cultures. There isn’t even the east coast/west coast thing because (besides the obvious Seattle-Sunnyvale geography) Microsoft has very astutely created a mothership campus (a few miles from Yahoo) for consolidating all their SV acquisitions — starting with buying Forethought (creator of PowerPoint) back in July 1987. Yes they could botch it, yes they need a Yahoo division president who spans both camps, but it’s as close a culture fit as Yahoo is going to get. (The rumored News Corp. - Yahoo merger would have been another AOL Time Warner — and look how well Terry Semel worked out).
- MSFT needs to keep the Yahoo brand and identity. It has better share and (I’d bet) far better associations in most of the world than Microsoft’s. Yes it means forcing the MSFT online division to submerge their egos and join Yahoo, but anything less would destroy the value of the acquisition. Plus some people just hate Microsoft, which brings me to …
- Antitrust shouldn’t be an issue — except for Europe. Yes Microsoft can’t bundle Yahoo search on the desktop and expect the US DOJ to approve, but other than tying to the Windows monopoly it will sail through the US as it provides real competition to Google’s majority share. Europe is another story. The FT and Reuters referred to “bad blood” between Microsoft and EU competition authorities. Like the WSJ, I think the real problem is that Microsoft is public enemy #1 for Eurocrats who use the excuse of competition policy to hobble successful US firms.