Wednesday, May 28, 2008
Microsoft Yahoo Crunch Time
End of the road for Yahoo! Inc. as a seperate entity and it's time to put your money where your mouth is. If you want to make money off the MS-Yahoo bid, now's the time. Here's what's going to happen pretty soon. The Yahoo Board and Microsoft will announce a Microsoft buyout of Yahoo for either $34 or $35. Yahoo! Inc. shares (NASDAQ: YHOO - 27.16) will zoom up to the offer level within 24 hours. That's between $7 to $8 above today's price. Microsoft Corp. shares (NASDAQ: MSFT), on the other hand, will fall by a dollar or maybe a couple of dollars. The rest of the tech sector, except for Google Inc. (NASDAQ: GOOG), will be carried along on Yahoo's wave, and most likely so will most other stocks, even those outside tech.
The basic reasoning for that is explained very clearly here, in my previous post about Icahn. The only thing left out in that post is the timing. Why now? The Yahoo board meeting isn't till the end of July. Is Yahoo throwing in the towel? Well, two reasons actually. First, Gene Marcial from BusinessWeek reports that pressure from large shareholders has persuaded Yahoo to work out a transaction with Microsoft, or alternatively, with Google. "Something will definitely happen soon" says one of the people involved in solving Yahoo's conundrum.
(Update 1, May 29th 2008: Jerry Yang and Yahoo President Sue Decker interview with Walt Mossberg at D6 in Carlsbad, CA. Money quotes - "But I think we both understand that there is a tremendous amount of power in a combination like the one Microsoft proposed" and Yang stresses again that it was Microsoft that walked away from the table.)
Secondly, as I've explained before, selling off only Yahoo's search business does not benefit Yahoo shareholders in any way. It gives Microsoft what they want, but there's nothing in it for Yahoo's long term future. So no partial deal limited to Yahoo Search. Third, and again, as I've said before, a Google-Yahoo ad deal is not gonna happen. There's too many negatives for Google here, with the only positive being that it might have kept Microsoft away from Yahoo. And it's too late for that now.
Lastly, I don't think anyone really apreciates why Microsoft is shelling out 50 billion dollars just to get their hands on Yahoo's search business, considering that they have shown virtually no interest in Yahoo's other properties. I mean, can you name one article in the news, or any comment by anyone from Microsoft, where there's any kind of discussion about the value of, and benefits from, the rest of Yahoo's assets? But fact of the matter is that this game is about something a lot bigger than search. It's about who is going to dominate the next decade in internet computing. Because Microsoft's entire plan for the future is to migrate its PC based Windows software into 'software plus services' on Windows Live Services. And they want to get it done before Google invades their turf. The only way to do it fast is by acquisition. And the man behind this desire by Microsoft to acquire Yahoo at any and all costs is Kevin R Johnson, who is President, Platforms & Services Division at Microsoft (Biography, Forbes Profile). Fortune Magazine has a pseudo-interview with Johnson, where he outlines the stakes and Microsoft's plans to tackle Google's increasing clout.
During a long conversation, Johnson draws a simple chart on a whiteboard. Four vertical rectangles represent industries that profit from online advertising: search, information and content, communications and social networking, and online productivity services (e.g., word processing on the web rather than on the desktop with Microsoft Word). Underneath all four is a horizontal box - the revenue-generating ad platform on which the other industries rely. That box is key to Microsoft's online aspirations. But for a platform to work properly, Johnson says, it needs scale. "The more ad inventory you can get, the better job you can do to target ads, drive efficiency, and deliver better yield for publishers." Google has scale; Microsoft doesn't. But it does have a lot of money. Thus the Yahoo pursuit. - The man who would run Yahoo, David Kirkpatrick, Fortune Magazine, May 28 2008
Put together all this - Yahoo Board finally ready to go ahead with a transaction, Microsoft's entire future hangs in the balance, Google only a bit player in this drama, Yahoo shareholders providing the push and the deep pockets needed to get both Yahoo & Microsoft back at the table, and a deadline looming ahead at the Yahoo AGM where the current board almost certainly would be defeated. What we have here is all the makings of a handshake photo-op between Steve Ballmer and Jerry Yang.
The basic reasoning for that is explained very clearly here, in my previous post about Icahn. The only thing left out in that post is the timing. Why now? The Yahoo board meeting isn't till the end of July. Is Yahoo throwing in the towel? Well, two reasons actually. First, Gene Marcial from BusinessWeek reports that pressure from large shareholders has persuaded Yahoo to work out a transaction with Microsoft, or alternatively, with Google. "Something will definitely happen soon" says one of the people involved in solving Yahoo's conundrum.
(Update 1, May 29th 2008: Jerry Yang and Yahoo President Sue Decker interview with Walt Mossberg at D6 in Carlsbad, CA. Money quotes - "But I think we both understand that there is a tremendous amount of power in a combination like the one Microsoft proposed" and Yang stresses again that it was Microsoft that walked away from the table.)
Secondly, as I've explained before, selling off only Yahoo's search business does not benefit Yahoo shareholders in any way. It gives Microsoft what they want, but there's nothing in it for Yahoo's long term future. So no partial deal limited to Yahoo Search. Third, and again, as I've said before, a Google-Yahoo ad deal is not gonna happen. There's too many negatives for Google here, with the only positive being that it might have kept Microsoft away from Yahoo. And it's too late for that now.
Lastly, I don't think anyone really apreciates why Microsoft is shelling out 50 billion dollars just to get their hands on Yahoo's search business, considering that they have shown virtually no interest in Yahoo's other properties. I mean, can you name one article in the news, or any comment by anyone from Microsoft, where there's any kind of discussion about the value of, and benefits from, the rest of Yahoo's assets? But fact of the matter is that this game is about something a lot bigger than search. It's about who is going to dominate the next decade in internet computing. Because Microsoft's entire plan for the future is to migrate its PC based Windows software into 'software plus services' on Windows Live Services. And they want to get it done before Google invades their turf. The only way to do it fast is by acquisition. And the man behind this desire by Microsoft to acquire Yahoo at any and all costs is Kevin R Johnson, who is President, Platforms & Services Division at Microsoft (Biography, Forbes Profile). Fortune Magazine has a pseudo-interview with Johnson, where he outlines the stakes and Microsoft's plans to tackle Google's increasing clout.
During a long conversation, Johnson draws a simple chart on a whiteboard. Four vertical rectangles represent industries that profit from online advertising: search, information and content, communications and social networking, and online productivity services (e.g., word processing on the web rather than on the desktop with Microsoft Word). Underneath all four is a horizontal box - the revenue-generating ad platform on which the other industries rely. That box is key to Microsoft's online aspirations. But for a platform to work properly, Johnson says, it needs scale. "The more ad inventory you can get, the better job you can do to target ads, drive efficiency, and deliver better yield for publishers." Google has scale; Microsoft doesn't. But it does have a lot of money. Thus the Yahoo pursuit. - The man who would run Yahoo, David Kirkpatrick, Fortune Magazine, May 28 2008
Put together all this - Yahoo Board finally ready to go ahead with a transaction, Microsoft's entire future hangs in the balance, Google only a bit player in this drama, Yahoo shareholders providing the push and the deep pockets needed to get both Yahoo & Microsoft back at the table, and a deadline looming ahead at the Yahoo AGM where the current board almost certainly would be defeated. What we have here is all the makings of a handshake photo-op between Steve Ballmer and Jerry Yang.
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