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Taking a look back at the potential Microsoft-Yahoo deal its amazing how good the deal would have been for Yahoo

Microsoft made the biggest news of the young year in February 2008, when it made a $44.6B USD bid for Yahoo Inc.  The acquisition of the struggling internet search firm would have created a major competitor to Google. 

However, Yahoo's leadership, unwilling to loosen their grip on their control of the company, turned down Microsoft's offer of approximately $31/share, demanding close to $40/share or no deal.

At the time Yahoo claimed Microsoft's deal undervalued Yahoo's worth.  Now, with Microsoft gone and its potential partnership with Google unexpectedly gone, Yahoo is probably wishing it had accepted Microsoft’s offer.

The magic number to consider when pondering Yahoo's fate is 291.  That is the approximate percentage in Yahoo's current worth that the deal would have given Yahoo.  A 191 percent premium over the current price is certainly more than it could hope for now.

The original deal was to be half cash, half stock -- approximately $22.3B USD in cash and $22.3B in stock.  The cash alone is almost double Yahoo's current worth.  At $10.80/share during trading Wednesday, Yahoo's net worth was approximately $12.69B USD.  And though the Microsoft stock has also devalued, dropping the value of the stock portion from $22.3B USD to $14.63B USD, approximately, this would be a handsome addition.

Together, Yahoo would have gained in current stock prices $24.4B USD over its current worth.  Thus you could argue that Yahoo's leadership, headed by Jerry Yang, cost shareholders this incredible sum.  It’s no wonder that many shareholders have tried to sue their once darling pick in a class action.

As they say -- hindsight is 20/20.  At the time when Mr. Yang and Yahoo rejected Microsoft, most agreed that it was a foolish decision.  However, as we take a retrospective of the massive cost of the company's pride in staying independent, it’s amazing to realize just how misguided it was.

Again, conditions could always change, and the winds could blow once more in Yahoo's favor.  However, after years of steadily losing market share and ad revenue to Google, a turnaround seems unlikely for Yahoo, who is in the midst of cutting more employees.  In the long run, the only possibilities seem a sale to Microsoft or someone else at a much lower price, or a long descent in obscurity.

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what an idiot
By Nik00117 on 11/13/2008 8:15:14 AM , Rating: 5
I recently had a old beat up car. It was worth about $300 bucks as is. So a guy came along and offered me a $1,000 I didn't say $1,200 or no deal I said here are the keys give me the cash and walked away.

Yahoo should of done the same, They declined a very good offer, not only did they decline a good offer they asked for a better one.

You see if you get offered an ammount that is more then what it's worth I suggest you take it otherwise you might be SOL.

I know if I would of kept that car there is no telling when i got rid of it. But $1000 sounded like a kick ass deal. So i took it, yahoo was given a kick ass deal take it.

Business should never become personal to this degree especially at this level of business.




RE: what an idiot
By BruceLeet on 11/13/2008 8:22:46 AM , Rating: 5
I just want to say how ugly Jerry is, his stupidity matches his ugliness


RE: what an idiot
By mooncancook on 11/13/2008 12:52:04 PM , Rating: 2
at least he's still got hair


RE: what an idiot
By feraltoad on 11/14/2008 1:31:58 AM , Rating: 2
He'll pull all that out soon enough, or it might come out with the tar and feathers.


RE: what an idiot
By quiksilvr on 11/15/2008 10:57:04 PM , Rating: 2
SanDisk is going to be on the same boat soon enough.


RE: what an idiot
By MatthiasF on 11/13/2008 8:39:45 AM , Rating: 1
Figuring out the value of a company is not as simple as looking it up in an industry standard price book like a car.

Many of Yahoo's shareholders did not want to sell out to Microsoft anymore than it's leadership. Had there been an overwhelming shareholder push to agree to Microsoft's offer, the board wouldn't have had a choice.

So, as much as everyone wants to blame one man, it's really a blunder on behalf of many. Some analysts believe that even if Yahoo had agreed, the deal would have fell through anyway because Microsoft was going to rely on a type of credit that's not easy to get several months later.

Side-note: This isn't a news article, it's a blog article. Can we get this Yang bash over to the right column?


RE: what an idiot
By MrBlastman on 11/13/2008 9:37:40 AM , Rating: 3
Regardless of Yahoo's worth, what they should have done and actually did - I'd like to say I use Yahoo every single day and find some of their services extremely useful. I've been using them since about 1995 actually. I do not use their search engine typically (I feel it has gone down in usefulness rather than up), but, I do use such unreplaceable assets such as Yahoo Finance - which is the best free financial resource on the whole internet (at least that I have found).

In retrospect, it has been a costly decision on paper. Weather Yahoo can get their share price back up remains to be seen. One thing that you need to consider is that the market has taken a dramatic dive in value across every sector - so declaring that the bulk of the share prices decline was solely due to that one decision would be irresponsible, given the power of fear and its influence on selling decisions for the entire market.

I would say though that at least half, if not 2/3rds of that decline was due to the decision and its fallout.


RE: what an idiot
By MykC on 11/13/2008 11:26:31 AM , Rating: 1
Jerry Yang may not of wanted to sell. When you have something of value that also has sentimental value, you'll sell but only if someone is willing to overpay its material worth. Its not like more money to a guy like Jerry is going to change his lifestyle in anyway.


RE: what an idiot
By ashishmishra on 11/13/2008 10:08:26 PM , Rating: 3
No one would have had an issue with his decision if he owned the company. As it stands the actual owners are the shareholders and they lost a lot of money due to this decision.


RE: what an idiot
By jimbojimbo on 11/13/2008 3:43:43 PM , Rating: 2
I agree with what you say but I just have to correct something. It's "Yahoo should have done the same" not "of." I wouldn't have said anything but you did it twice.


RE: what an idiot
By 4wardtristan on 11/13/2008 5:19:26 PM , Rating: 2
but we're not talking about a 1000$ car here....

we are talking about a deal worth 44.6 BILLION dollars.

its not like he, on the spot, went "nah"

im sure he thought this through, albeit made the wrong decision, but its not like its as easy as you make it out to be.


What happens now?
By Samus on 11/13/2008 8:20:16 AM , Rating: 2
a) Microsoft offers Yahoo another offer, significantly lower than the one made in February

b) Microsoft waits for Yahoo to deteriorate and file bankrupcy (the long haul)

c) Yahoo finds another market to compete in (get's Google-creative)

d) Yahoo and another company merge (maybe Apple wants to get into another market)

However, I don't know how much Microsoft wants Yahoo anymore. If anything, they've learned Yahoo doesn't have a lot of value...just some IP and engineers.




RE: What happens now?
By dickeywang on 11/13/2008 8:36:05 AM , Rating: 4
Oh, please not to be d), Apple taking over the biggest internet news site would be a disaster for almost everyone.


RE: What happens now?
By kelmon on 11/13/2008 9:32:19 AM , Rating: 1
As opposed to Microsoft taking it over? I'm quite certain that Apple has no intention of buying Yahoo! (seriously, what has Yahoo! got these days that Apple wants/needs?) but even if they did then I fail to see why it would be a disaster, aside from apparent cool value of saying something negative about Apple.

Incidentally, is Yahoo! really the biggest internet news site? That surprises me.


RE: What happens now?
By wordsworm on 11/13/2008 11:29:34 PM , Rating: 2
myyahoo is my primary source of news. It's great - I have headlines from all sorts of interests I have. Treehugger, 420 Magazine, Scientific American, Science Daily, Wired, TechCrunch, are just a few of the many that I subscribe to through yahoo's service: psychology, architecture, computer news, etc., etc. It's too bad Daily Tech and Anandtech haven't submitted their sites to Yahoo.

But since this article is more about Yahoo not getting swallowed up by the bigger fish, we should consider the feelings of the people behind DT or AT and how they would feel if a bigger fish came to size up and swallow them.


RE: What happens now?
By IceBreakerG on 11/13/2008 9:22:53 AM , Rating: 2
If I remember correctly, Microsoft already hired several of Yahoo's senior engineers earlier in the year. I believe this happened when their stocks first started to take a huge nose dive after the take over bid was withdrawn. So, the IP probably isn't that important now that they have the people behind it anyway.


Shame
By kelmon on 11/13/2008 9:29:35 AM , Rating: 2
Hindsight, as they say, is always 20/20.

I rather feel sorry for Yang. He clearly loves Yahoo! and wanted the best for them but he didn't understand that the offer provided was the best that he was going to get and that something is better than nothing. The current economic problems have hardly improved his options, either. At this stage I'm rather expecting Yahoo! to go bankrupt and then Microsoft can get the technology that they want at firesale prices.




RE: Shame
By InvertMe on 11/13/2008 10:00:12 AM , Rating: 2
It's a huge shame - I hope Yahoo can collect itself enough to pull out of this slump. I have several friends who quit their jobs on the east coast and move to Cali to work for Yahoo. I would hate to see them lose their jobs so far away from home.

Losing your job when you have friends and family close by is hard enough but all alone in another state.. That's too rough.


RE: Shame
By Solandri on 11/13/2008 12:47:18 PM , Rating: 3
If you plot YHOO vs. MSFT and the market indices starting from the day before Microsoft made their offer to now, you'll see YHOO is down 47%, MSFT is down 41%, and the NASDAQ and S&P500 are down 39%. So it's a bit deceptive to lay all the blame for YHOO's drop on Yahoo itself. Generally speaking, anyone who cashed out before the recent market plunge would've saved a bundle.


RE: Shame
By nah on 11/14/2008 6:35:06 AM , Rating: 2
The analysis is excellent--blaming Yang on the fall of prices is premature--ALL tech prices are below their peak--the cause is different than simply the refusal to sell--it's the economy


If Yahoo somehow did foresee,
By Clauzii on 11/13/2008 8:42:00 AM , Rating: 2
.. that the MSFT stocks would go from ~$30 to ~$20 in 8 months, that might be why they refused, and on that basis asked for more than what seemed to make sense back in february.

What really makes me think, is that MS have had both the time, money and market penetration possibility, but somehow didn't get there on their own??




Reminds me...
By Kyanzes on 11/14/2008 2:42:39 PM , Rating: 2
... Grand Nagus Smeet... the only Grand Nagus to be assassinated while in office, following a plummet of the Ferengi stock market. :)))

The guy should have watched Deep Space 9.




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