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Internet Yahoo Wants More Money -- Again
Jason Mick (Blog) - April 7, 2008 11:13 AM
Print E-mail del.icio.us 56 comment(s) - last by desertvet.. on Apr 9 at 10:50 AM

Microsoft CEO Steve Ballmer, will likely not be pleased with Yahoo's response.
Yahoo calls Ballmer's comments "curious"

After sending a letter, which most in the news industry perceived as threatening, Ballmer sent a clear message to Yahoo's board -- prepare to turn over ownership of the company within three weeks, or prepare to be deposed in a proxy battle.  Yahoo's leadership occasionally seemed open to negotiations, having a joint executive meeting between its executives and Microsoft's last month. 

However, Yahoo has more often than not resisted Microsoft's current advances, since its initial rejection.  Microsoft refuses to raise its $44.6B USD offer, while Yahoo states that the offer significantly undervalues the company.

All indications are that the companies are headed for a showdown which will put the power and influence of Yahoo's board to the test.  In a response letter to Microsoft CEO Steve Ballmer, chairman Roy Bostock and chief executive Jerry Yang expressed that they are not opposed to a deal, but would not accept such a low offer.

Yahoo's confidence was partially due to its reaffirmation of first-quarter and year-end outlooks, which some worried would be revised lower.  Also, Yahoo cites its three-year financial plan and its new AMP advertising management platform as additional strength.  The company has tried to stay independent and turn around by acquiring advertising companies such as Maven and by releasing new services.

Yahoo's response states that Ballmer's letter "mischaracterizes the nature of our discussions".  The letter's hostile language, Yang and Bostock state is "counterproductive and inconsistent with your stated objective of a friendly transaction."

The pair continues, "Your comment that we have refused to enter into negotiations to conclude an agreement are particularly curious given we have already rejected your initial proposal, nominally $31 per share at the time, for substantially undervaluing Yahoo! and your suggestions in your letter and the media that you are considering lowering the value of your proposal. Moreover, Steve, you personally attended two of these meetings and could have advanced discussions in any way you saw fit."

Yahoo also cites concerns over antitrust issues that might arise from a merger.  As it points out, a merger would include an extensive regulatory review.  Rival Google has suggested that a merger may violate antitrust laws and that it might fight a merger on such basis in court.

Yang and Bostock close the letter on an open but firm note stating, "We are open to all alternatives that maximize stockholder value. To be clear, this includes a transaction with Microsoft if it represents a price that fully recognizes the value of Yahoo! on a standalone basis and to Microsoft, is superior to our other alternatives, and provides certainty of value and certainty of closing."

Despite the pair's offer, unless Microsoft reverses its current policy, it appears that Microsoft will likely prepare to finalize its hostile takeover attempt with a proxy battle within three weeks.

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Give me my monies!
By MrBlastman on 4/7/08, Rating: 0
RE: Give me my monies!
By BMFPitt on 4/7/2008 11:56:53 AM , Rating: 3
quote:
Yahoo has been in a 25-low30something trading range for the last year and a half, and prior to that a 30-40 range.
And 500SqFt houses in California were selling for $600k last year.


RE: Give me my monies!
By MrBlastman on 4/7/2008 12:12:09 PM , Rating: 2
There is a difference between a trading range and a bubble.


RE: Give me my monies!
By TomZ on 4/7/2008 12:18:47 PM , Rating: 5
True, but YHOO trading in the $30 range since the MSFT offer is only because of the offer. If MSFT were to for some reason withdraw, I'm confident the stock would return to the $20 range pretty quickly, since there's nothing that's changed or improved in YHOO's business since pre-MSFT.

So really you could see the current YHOO price as a "bubble."


RE: Give me my monies!
By FITCamaro on 4/7/2008 12:29:24 PM , Rating: 3
Exactly. It's trading high because people are fairly confident that Microsoft will acquire Yahoo at a higher price. If the deal goes south, all those people who were hoping to make a quick buck will sell as fast as possible. I wish I had some Yahoo stock prior to this, I would have sold it at the now higher price, then rebought it once the deal falls through.

Correct me if I'm wrong but if Microsoft does a hostile takeover, they don't buy it at a higher price?


RE: Give me my monies!
By MrBlastman on 4/7/2008 12:48:14 PM , Rating: 5
Correct, you offer to buy out a company generally at a premium, which is typically determined by:

1. Share price and average trading range
2. Future revenue enahancement and benefit to the bottom line
3. Value of the IP
4. % of Marketshare your place in the industry will be enhanced by
5. Market Cap of the company
6. Companies performance as of late

Yahoo has been trading between 23-34 for some time now, with a 10-year moving average at around ~28 - 28.5. Its IP is invaluable considering the large % of marketshare they possess. Their revenue has been growing while their income slumped slightly in 2007, it was still very profitable.

At the time of the offer, Yahoo was trading at 30-34 back in Novenber of 2007 and had just slumped down to 19 or so bucks, creating a temporary valley in the trading range. Microsoft acted on the opportunity and basically slapped them by giving them an offer of 31.00 a share, which is essentially a 8 - 10% premium over its moving average.

Considering the amount of presence on the internet Yahoo could give Microsoft over what they hold now, take into mind that:

Google has up to 56.5% of the market in Search alone
Yahoo - 23.3%
Microsoft - 11.3%
source: http://www.comscore.com/press/release.asp?press=17...

That means that Microsoft would potentially gain a 206% increase in market share of search alone! (11.3 -> 34.6% overnight!) This is pretty impressive by itself.

This is just search. I don't use Yahoo to search. I use it for its other IP - i.e. Yahoo! Finance. Many other people utilize Yahoo for things far and beyond search as they provide a wealth of non-search IP and these figures do not take this into account.

So if you consider the market share increase on its own, a 8-10% premium is a huge lowball to the perceived benefit that Microsoft could gain. It is a small sum of money.

Yes the stock was trading at 18 a share, but you have to look at how it has been behaving over time and smooth out the dips and peaks creating a moving average which I've done. It just doesn't compute that 31/share would be acceptable. I'd love to see them offer more.


RE: Give me my monies!
By just4U on 4/7/2008 12:59:40 PM , Rating: 4
I don't know very much about stocks and such but I've heard alot in the news the past few years that alot of it is obsenely overpriced and eventually has to come back down to more realistic levels. Now, I don't know if Yahoo is one of those "overvalued" stocks but with a slowing econemy and the fact that it's been sort of in decline doesn't that mean that it's one of those stocks likely to fall rather then rise over the next couple of years?


RE: Give me my monies!
By Oregonian2 on 4/7/2008 1:35:06 PM , Rating: 3
Trend for the last two years (ignoring the recent jump up to something near the offer price) looks pretty downward using my eye trend averager.

http://finance.yahoo.com/q/bc?s=YHOO&t=2y


RE: Give me my monies!
By TomZ on 4/7/2008 1:29:55 PM , Rating: 2
quote:
At the time of the offer, Yahoo was trading at 30-34 back in Novenber of 2007 and had just slumped down to 19 or so bucks, creating a temporary valley in the trading range.

Again, it only looks like a valley because of the MSFT offer. In other words, there's no evidence that the stock would having done anything other than continuing at the same price or lower in absence of the offer. Especially when you consider the overall background of the mediocre management/execution of Yahoo relative to its peers of late.


RE: Give me my monies!
By onelittleindian on 4/7/2008 7:39:15 PM , Rating: 2
Right. Yahoo at $31 a share is very overpriced. The company has been losing market share for years. A buyout by MS (or someone like them at least) is actually the best thing for them.


RE: Give me my monies!
By BMFPitt on 4/7/2008 2:05:37 PM , Rating: 2
quote:
It just doesn't compute that 31/share would be acceptable. I'd love to see them offer more.
And if Microsoft pulls the offer, then a year from now you'll be wishing you had taken the $31 when they try again and offer $25.


RE: Give me my monies!
By MrBlastman on 4/7/2008 2:10:05 PM , Rating: 2
I'd rather take my chances. :)

Yahoo has been around for a while now (in Internet years) and I wouldn't put it past them to figure out on their own how to better compete.

I saw what happened with Hotmail and other IP Microsoft has bought. I'd hate to see Yahoo's quality decrease.


RE: Give me my monies!
By TomZ on 4/7/2008 2:30:58 PM , Rating: 1
quote:
Yahoo has been around for a while now (in Internet years) and I wouldn't put it past them to figure out on their own how to better compete.

I don't think they can figure it out - and that is the problem. If you remember, the last time MSFT came around, Yahoo management wanted more time to get the company going into the right direction. And what has changed since then at Yahoo, exactly? Nothing. And that's the problem.

The best way forward for Yahoo and its shareholders is to have its current management team replaced. An acquisition is one way to accomplish that.


RE: Give me my monies!
By MrBlastman on 4/7/2008 2:51:52 PM , Rating: 2
I'll give you the management change.

They did make one a year ago and to their credit did say 2007 would be a rough year. We don't know exactly how they will fair this year but speculation is it will be weaker than expected.

Perhaps they could use a management change to help spur them towards better growth.

I'd just like to see it done internally rather than by being bought.


RE: Give me my monies!
By mindless1 on 4/8/2008 7:14:27 PM , Rating: 3
You're saying you don't think they can figure it out, and yet they were still more successfull at it than MS was - so whatever they can't figure out, what would a takeover improve upon?

The truth is, we have a short term anomoly in the market because Google's growth was so grand. Google is now bubbling and ultimately their share is volatile over the next few years. Yahoo could easily gain or lose quite a bit of ground but one thing we still see is that however good or bad they were doing, they were still the largest competitor to Google on their own turf.


RE: Give me my monies!
By rsmech on 4/7/2008 9:47:47 PM , Rating: 2
quote:
Yahoo has been around for a while now (in Internet years)


Maybe that's the problem. People look to the internet for something new & hot, a real potential investment. (Google, Face Book, You Tube, My Space, ect.) Yahoo is past that. If they can't even maintain people see no money to be made. AOL anyone? Their age in the internet may be part of their problem.


RE: Give me my monies!
By jhinoz on 4/7/2008 3:09:19 PM , Rating: 1
I'm still at playschool when it comes to in company analysis but just on the market share figures you've given on search alone:

Google - 56ish %
Yahoo - 23ish %

and they are both on the down trend. (so 79ish % of the market is on a downtrend?)

And Microsoft comes alone and offers a 10ish % premium (ok pretty scant for a takeover but heck a premium on a loser yes please)

I'm missing the part of this that sucks? If I've got yahoo shares, I take the offer, get instant 10% and buy MS shares and take advantage of the synergies provided by the assimilation of the 2 companies.

again, playschool economist here, sorry if i got it wrong.