AOL - Time Warner to merge!
Oh wait, I mean Microsoft and Yahoo! ... which does smell, to me, a lot like the AOL-Time catastrophe of just a few years past. The aging giant of days of yore (that would be Microsoft) looking for a way to get hip (that would be Yahoo!) and BIG in a hurry. But (you heard it here first) it will end in tears. Dust off those stories about how the two cultures don't merge, and about how the "expected synergies" never seemed to materialize. You have to be big to beat google at its game, but you can't buy your way big. I'm gonna short this deal, for sure.
And I don't know anyone in any space who considers Yahoo close to being hip. They're actually the aging relic of the two.
Were you high when you wrote this?
I think you're wrong about Microsoft's intentions. They're not trying to buy hip, they're trying to buy marketshare.
From c|net
There will be no problems trying to get the two cultures to merge - it will be Microsoft's culture all the way. I would bet that in the long run, they won't even keep the Yahoo! brand. They will probably start with something like "Yahoo! by Microsoft", and just gradually phase out the Yahoo! part.
Honestly, right now is an impressively good time to purchase Yahoo, as its depth of use is widely underestimated even by those in the field.
Oddly enough, the most important part isn't the Hip and Trendy stuff -- Yahoo hasn't done that for the better part of the decade -- but the traditionally conservative market and finance people. Those also happen to be the least likely to switch teams.
I'm not sure I like it, but that doesn't mean it's a bad idea.
And there is a very strong presumption that MSFT is wildly overovervaluing YHOO. What exactly makes them think Yahoo! is worth about 40% more than the market says? Hubris, perhaps?
This entire post is a bit silly.
Yeah. Who cares if Microsoft's stock price drops as a result?
The point is not that there is no price at which this acquisition makes sense. The problem is the price. It smells to me like too much ego and not enough arithmetic went into the decision. This is true of many, many acquisitions.
Also, aren't Microsoft and Yahoo a lot more similar than AOL and Time Warner? Microsoft's principal asset is its near-monopoly in operating systems and basic office software, but it's a player in internet markets (most notably search) where it's directly competed with Yahoo for years. The synergies from putting Microsoft's search people together with Yahoo's search people sound very different from the synergies from putting AOL's Internet business together with traditional media properties like Sports Illustrated. The promised synergies might very well fail to materialize anyway, but I don't think the analogy is very strong.
First, it's a buy-out (and a hostile one!) rather than the stock-merger that AOL-TimeWarner went through. AOL was wildly overvalued, and eventually the deal destroyed all shareholder value. Here, from a shareholder view the Yahoo shareholders will make out quite fine, while Microsoft could withstand even a complete bust.
Here is the description of the deal from thedeal.com: "In a Friday, Feb. 1, statement, the software giant said it had offered to buy Sunnyvale, Calif.-based Yahoo! for $31 per share in cash or 0.95 of a Microsoft, with the total payment divided evenly between cash and stock. The offer is a 62% premium to the target's closing stock price on the Nasdaq Thursday but falls short of Yahoo!'s 52-week high of $34.08 reached in late October."
So Yahoo shareholders are already going to do fine. Also since it is cash (and I would assume that Microsoft is not going to have to borrow all that much of this with their huge sitting cash balances). Remember, they have had tons of cash sitting on the balance sheet waiting for all their antitrust lawsuits and they have it to spend. Compared to government securities, this is not all bad.
Moreover, since it is not a stock-merger but instead a buy-out, I don't think you'll see any culture clashes. Remember, at the AOL-TimeWarner time AOL's execs were initially installed as some of the most senior folks (Steve Case, etc). I don't think too many of the Yahoo folks will find themselves on the inside of Microsoft's core group.
Finally, unlike AOL, Yahoo is actually making some money, despite its share price plummets. And AOL had a business model that was clearly on the way out (unless you started on the internet pre-2000, did you use any of those online services?).
And although Google is the 800lb gorilla, search itself is not going away and Microsoft through this deal might actually be able to use Google's dominance against it: the U.S. Antitrust folks and moreso Europe are skeptical of Google's dominance and having a large rival to Google in this arena will probably be seen as a net positive. (Again, particularly in Europe.)
So I simply disagree with such cursory analysis.
It seems to me you're just generally betting on Google vs. Microsoft. Maybe so. But that's a different issue. I think this is good for Microsoft, but whether it's enough, who knows. But again, MSFT has no serious competitors for its two cash cows (Windows and Office).