Monday, March 31, 2008
WSJ vs. CitiGroup
Last week, Citigroup Investment Research analyst Mark Mahaney reasoned that Microsoft had to increase the offer price for Yahoo Inc. above the initial $31 per share bid. Citigroup also raised its price target on Yahoo's stock to $34 from $31, saying that the new target price reflected its belief that Microsoft would increase its bid for the company. "We think the strategic value of Yahoo to Microsoft is very significant," Mahaney said. However, one possibility would be for Yahoo to partner with Time Warner Inc. in a setup where Time Warner would contribute its online content to Yahoo in exchange for a stake in the Internet company, he said. "We believe this could serve as a forcing function to a higher Microsoft bid," Mahaney said.
Now, Matthew Karnitscnig, Wall Street Journal, reports that Microsoft is digging in for a long seige and is unlikely to raise the initial offer. Two months after Microsoft made its $44.6 billion offer to acquire Yahoo Inc., the software maker has no plans to raise its bid, people close to the company say. Other people familiar with Microsoft's thinking say the company has no immediate plans to nominate a slate of directors to replace Yahoo's current directors.
So one of them has to be wrong. Right? Wrong. They could both be right. It's just a matter of 'timing' and 'two-timing'.
On a superficial level, the reason Yahoo! Inc. Board has given for rejecting the offer is that the price is too low, and that they'll either look for an alternative buyer who will pay more. Obviously, Yahoo shareholders are infatuated with the idea that their precious Yahoo! stock deserves more, and they're willing to wait some more and see how it goes. So, if Microsoft wants to see some action anytime soon, they'll have to increase the offer. This is the 'timing' part.
Now please note that this is just a surface play. Deep down, Yahoo has no intention of selling to anyone, but still knows that the 'won't sell' argument is not going to fly, at least not under present circumstances. Either they find a buyer or the shareholders will force the issue, sooner or later - Probably around the time when it sinks into the market that Yahoo has no intention of selling itself to anyone, and the stock tanks to around $10-$15. So Yahoo is stringing it along as far as possible, playing for time while making it seem like they're really on the cusp of a new deal, in the hope that they can pull the company out of the dunps and make shareholders think that it might be better to hang on. This is the 'two-timing' part.
Microsoft, instead of falling for the bait, has decided that Yahoo is pulling a fast one, and they'd rather sit back and watch Yahoo's board commit Hari-Kiri, as the shareholders pull the rug out from under, and hand over Yahoo! Inc. on a plate to Microsoft.
So, yes, the Citi analyst is right, in that if Microsoft wants to get their hand on Yahoo now, they'll have to increase the offer. But they'll get Yahoo even if they don't increase the offer, which is what the WSJ is trying to say. Just have to wait for some time. Because, believe me, Yahoo has absolutely no intention of selling itself - Not to NewsCorp, not to Time-Warner, and certainly not to Microsoft. They're just trying to correct course and improve earnings to get shareholders off their backs, improve investor confidence, and then tell all the buyers to go 'merge' themselves... Sad to say, but its not going to happen, because Yahoo is too far gone to come back now, and Jerry Yang is out on a fool's errand. And the WSJ is right - All Microsoft has to do is wait, and Steve Ballmer will be welcomed to Sunnyvale on a red carpet.
What does this mean for the markets? Yahoo stock is on its way down - A long, long way down.
Now, Matthew Karnitscnig, Wall Street Journal, reports that Microsoft is digging in for a long seige and is unlikely to raise the initial offer. Two months after Microsoft made its $44.6 billion offer to acquire Yahoo Inc., the software maker has no plans to raise its bid, people close to the company say. Other people familiar with Microsoft's thinking say the company has no immediate plans to nominate a slate of directors to replace Yahoo's current directors.
So one of them has to be wrong. Right? Wrong. They could both be right. It's just a matter of 'timing' and 'two-timing'.
On a superficial level, the reason Yahoo! Inc. Board has given for rejecting the offer is that the price is too low, and that they'll either look for an alternative buyer who will pay more. Obviously, Yahoo shareholders are infatuated with the idea that their precious Yahoo! stock deserves more, and they're willing to wait some more and see how it goes. So, if Microsoft wants to see some action anytime soon, they'll have to increase the offer. This is the 'timing' part.
Now please note that this is just a surface play. Deep down, Yahoo has no intention of selling to anyone, but still knows that the 'won't sell' argument is not going to fly, at least not under present circumstances. Either they find a buyer or the shareholders will force the issue, sooner or later - Probably around the time when it sinks into the market that Yahoo has no intention of selling itself to anyone, and the stock tanks to around $10-$15. So Yahoo is stringing it along as far as possible, playing for time while making it seem like they're really on the cusp of a new deal, in the hope that they can pull the company out of the dunps and make shareholders think that it might be better to hang on. This is the 'two-timing' part.
Microsoft, instead of falling for the bait, has decided that Yahoo is pulling a fast one, and they'd rather sit back and watch Yahoo's board commit Hari-Kiri, as the shareholders pull the rug out from under, and hand over Yahoo! Inc. on a plate to Microsoft.
So, yes, the Citi analyst is right, in that if Microsoft wants to get their hand on Yahoo now, they'll have to increase the offer. But they'll get Yahoo even if they don't increase the offer, which is what the WSJ is trying to say. Just have to wait for some time. Because, believe me, Yahoo has absolutely no intention of selling itself - Not to NewsCorp, not to Time-Warner, and certainly not to Microsoft. They're just trying to correct course and improve earnings to get shareholders off their backs, improve investor confidence, and then tell all the buyers to go 'merge' themselves... Sad to say, but its not going to happen, because Yahoo is too far gone to come back now, and Jerry Yang is out on a fool's errand. And the WSJ is right - All Microsoft has to do is wait, and Steve Ballmer will be welcomed to Sunnyvale on a red carpet.
What does this mean for the markets? Yahoo stock is on its way down - A long, long way down.
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