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Yahoo's rejection is sure to hurt for Microsoft Chief Executive Steve Ballmer, who had previously expressed great enthusiasm for the potential deal.
Microsoft loses bid for Yahoo and must choose between a fully hostile bid, a higher offer, or waiting for Yahoo to fall further on hard times

The Microsoft-Yahoo saga, which played out over the last couple weeks, began with Microsoft making an unsolicited offer for internet giant Yahoo.  The plot thickened with the resignation of Chairman Terry Semel from Yahoo's board, and a Google threat of legal action to block the move.  While many analysts considered the deal a shoe-in, initial analysis of Yahoo's willingness to accept the deal in the first place was apparently off the mark.

Inside sources had warned that CEO Jerry Yang, who held considerable sway over the final decision had been very wary of Yahoo getting digested into the Microsoft empire.  These sources had called such a development "Jerry's worst nightmare."  Perhaps they should have been heeded sooner.

In a move which had been forecast since late last week, Yahoo's board on Monday formally rejected Microsoft's $45B bid.  The rejection made it clear that the board felt that anything less than double its stock price would be too little.  Yahoo would accept an offer of $40 per share or higher, significantly more than Microsoft's offer, which equated to about $31 per share.

The statement from Yahoo's board, attacked Microsoft's offer as cheap, stating, "The board believes that Microsoft's proposal substantially undervalues Yahoo, including our global brand, large worldwide audience, significant recent investments in advertising platforms and future growth prospects, free cash flow and earnings potential, as well as our substantial unconsolidated investments."

This contrasts Microsoft Chief Executive Steve Ballmer's valuation of the Yahoo, in which he called his company's bid "generous."

The board made it clear that its ears would be open to a higher bid from Microsoft or other investors, stating that Yahoo "is continually evaluating all of its strategic options in the context of the rapidly evolving industry environment."

Yahoo struggles are evidenced by significant layoffs and a 2008 forecast that many in the investment community considered disappointing.  Some see Yahoo's move and simply a gutsy attempt to try to get Microsoft to up its offer.  One thing that may stand in the way of this, though, is lack of competitive interest.  After Google's criticism, it is unlikely that Google would field a bid, and it might not be able to even do so, due to possible violations of antitrust laws stemming from a Yahoo-Google merger.  Fox owner Rupert Murdoch, known for buying up properties, has also stated that he has no interest in Yahoo.

As no one else has showed much interest in struggling Yahoo, Microsoft may feel little need to rush, and may alternatively choose to sit back and wait like a vulture circling a tired beast, ready to strike when Yahoo's circumstances make it more willing to deal.

Another possibility that remains is that Microsoft could make a fully hostile bid and bring its offer directly to Yahoo's shareholders, attempting to outmaneuver the board.  Such a move might work, but would risk seriously damaging its future prospects, if it was rebuffed.

Yahoo rejected a Microsoft bid in 2006 and 2007 in private talks, but this offer was Microsoft's first public bid; and also its first public rejection.  Microsoft refused to comment, so its next move is anyone's guess.  Microsoft, though, had previously made it clear that it considered the move an essential step for both companies, stating, "Today, the market is increasingly dominated by one player who is consolidating its dominance through acquisition.  Together, Microsoft and Yahoo! can offer a credible alternative for consumers, advertisers and publishers."

With the prospect of such an alliance evaporating almost as quickly as it was born, the news is surely a disappointment to Microsoft's leadership.

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Much Ado About Nothing
By TomZ on 2/11/2008 11:54:12 AM , Rating: 2
At the end of the day, Yahoo just wants more money for its shareholders. Surely nobody expected Microsoft to tender its best/highest offer first. There will simply be some negiotiation about the price, that's all.

RE: Much Ado About Nothing
By TerranMagistrate on 2/11/2008 12:14:42 PM , Rating: 2
Or there won't be any deal at all. Also, the fact that Microsoft was said to be considering going into a bit of debt on this $45 billion venture means that even their pockets are bottomless. Yahoo! wants significantly more.

RE: Much Ado About Nothing
By Master Kenobi on 2/11/2008 12:24:06 PM , Rating: 5
They are unlikely to get it. With Yahoo sliding fast, all Microsoft needs to do is stick the offer on the table and tell Yahoo to call them when they are ready to admit defeat. Given how fast Yahoo's stock is dropping that isn't going to take too long.

RE: Much Ado About Nothing
By omnicronx on 2/11/2008 1:09:51 PM , Rating: 3
OR they go behind the boards back, and pursue a hostile takeover. Microsoft's offer was pretty good, I really wonder how close the vote to reject really was.

RE: Much Ado About Nothing
By Master Kenobi on 2/11/2008 1:55:29 PM , Rating: 2
Yes, I remember early reports stating that Microsoft is over-valuing Yahoo at $31/share. Guess Yahoo's board thinks they are worth far more than they really are.

RE: Much Ado About Nothing
By Oregonian2 on 2/11/2008 2:28:10 PM , Rating: 2
I always thought it interesting when a company says that an offer, which is over the stock's market price, is too low.

If I were Microsoft I'd just sit aside and wait until Yahoo's stock tanks even more. Only problem is that Yahoo's value to them goes down in time along with the stock's price.

RE: Much Ado About Nothing
By Behlal on 2/11/2008 5:08:31 PM , Rating: 1
I don't know. It seems strange to me that you think offering the stock price would be good value. Effectively, the stock price is the average of what people on any given day are willing to pay for the stock that is available. It is really only an estimate at best, because it only looks at active sales. If I own stock worth $30/share, it doesn't mean I'm willing to sell the stock for that price.

Another aspect to look at is potential value. Let's say the stock is sitting at $30, but analysts have suggested that it could grow to $50 within 18 months. Would you then accept $30 for something you believe is worth $50 in a short period of time?

RE: Much Ado About Nothing
By TomZ on 2/11/08, Rating: 0
RE: Much Ado About Nothing
By mindless1 on 2/11/2008 10:05:51 PM , Rating: 2
Internet services will inevitably grow in the future, it's not as though there are only 4 aces in a deck and Google wins for having them all. Yahoo's future has everything to do with whether they can accurately project the public's needs online and advertise their services effectively. If they feel the bid from MS was too low, they must have a reason to believe it. They'd certainly have a better understanding of their business than we do, as they're not jonny come lately.

RE: Much Ado About Nothing
By CupCak3 on 2/11/2008 12:20:34 PM , Rating: 5
"Yahoo just wants more money for its shareholders"

... if by "Yahoo" you mean "the board members" and by "shareholders" you mean "themselves...

RE: Much Ado About Nothing
By Pandamonium on 2/11/2008 12:37:31 PM , Rating: 2
That's ridiculous. Yahoo's share prices reflect the company's current position in the market as well as it's future prospects. The whole point of an open market is so that prices reflect everything.

RE: Much Ado About Nothing
By rcc on 2/11/2008 1:48:40 PM , Rating: 3
However, there is a lot of perception mixed in there. Hence the "over" and "under" valued stocks. There is no set absolue formula that says this company is worth x.

RE: Much Ado About Nothing
By Oregonian2 on 2/11/2008 2:29:10 PM , Rating: 2
Market price is that, pretty much by definition, isn't it?

RE: Much Ado About Nothing
By Ringold on 2/11/2008 3:35:23 PM , Rating: 2
In the never-never-land of theory, you're right. In reality, rcc has it right.

All hail the animal spirits!

RE: Much Ado About Nothing
By TomZ on 2/11/2008 3:42:14 PM , Rating: 1
To that, I would add that the stock price is based on the average perceived value of the company amongst investors, which could differ from the actual value for any one of a number of reasons. And in reality, people trading a company's stock rarely (if ever) have a complete picture about the company in the present, let alone the future.

Ballmer's face
By TerranMagistrate on 2/11/2008 12:17:50 PM , Rating: 2
As I posted on the last article: I'd like to see his face when Yahoo! turns down their offer. Scary to be sure.

RE: Ballmer's face
By daftrok on 2/11/2008 12:25:10 PM , Rating: 4
Watch it be the same face.

RE: Ballmer's face
By Omega215D on 2/12/2008 2:49:19 AM , Rating: 2
It will probably resemble Donkey Kong except instead of hurling barrels at Mario it'll be chairs.

I still have some shares in Yahoo after selling a big portion off in 1999 so I'm pretty pissed at the Yahoo CEO for being a dimwitted bastard... unless of course the stock can go higher but I doubt it.

RE: Ballmer's face
By daftrok on 2/13/2008 4:02:14 PM , Rating: 2
Ballmer's face prior to Yahoo rejection:


Ballmer's face after Yahoo rejection:


RE: Ballmer's face
By daftrok on 2/15/2008 3:34:51 PM , Rating: 2

Yahoo will prevail
By wordsworm on 2/11/2008 1:09:14 PM , Rating: 2
There's something to be said about having power. Power makes you feel good. It's not something that always comes with money, just as money isn't always enough to buy power. If MS buys out Yahoo, then those who run Yahoo will no longer have their own company. They'll be dissected out of the company and its soul will be ripped out.

The way many people talk about Yahoo, you'd think they were losing money. So, last January they made 660 million instead of 740 give or take. That's still an awful lot of cash, and it's just the beginning of the year. We don't know what will happen in the near term. Yahoo is still the world's #1 website, and that's got to count for something.

RE: Yahoo will prevail
By augiem on 2/11/2008 1:59:30 PM , Rating: 3
Unfortunately, this current generation of stock investors are too easily swayed by hype. The market's going to be rocky from here on out I'm afraid. Google is the most overvalued company in history, as yahoo was back in the late 90's. It's time has finally come, as will Google's. Just being an internet company DOES NOT make your company automatically 10x more valuable than a traditional company people. Have we forgotten about revenue!!!!??? But somehow they just can't get that.

RE: Yahoo will prevail
By augiem on 2/11/2008 2:05:30 PM , Rating: 2
and profit... forgot profit. heh.

RE: Yahoo will prevail
By Ringold on 2/11/2008 3:41:51 PM , Rating: 2
I disagree entirely. Google was fairly priced given its growth rate. It's growth rate slowed, the price came down. That's straight forward. Yahoo's performance has been lousy, thus it never did grow as well.

Growth is everything. People want EPS growth, and people want and are willing to pay for accelerating EPS growth.

GOOG has 39 PE mutliple at the moment; YHOO had something around 38 when it was down near it's low. All you're doing though is looking at cash flow instead of looking at PEG, forward PE's, etc.

RE: Yahoo will prevail
By Ringold on 2/11/2008 3:44:23 PM , Rating: 3
And by the way, GOOG's most recently quarter saw 50.6% quarterly revenue growth, YHOO saw 7.6%, both year over year according to Yahoo Finance.

If you can't see the difference and thus the justification of the higher multiple GOOG has enjoyed then I don't know what to tell you. Companies with flat growth aren't worthless, just worth less.

If I was MS
By Spivonious on 2/11/2008 11:59:00 AM , Rating: 5
I'd say, "You don't like $31/share? Okay then, how about $25?" Yahoo is in trouble and no one else wants them.

RE: If I was MS
By AlphaVirus on 2/11/2008 12:31:50 PM , Rating: 2
Considering the "Yahoo selling" announcement has brought there stock soaring from $18-29 around Jan28, it sounds like they are trying to milk it while they can.

If Microsoft was their 'highest bidder' then they should really be warry of what bridges they burn. At 2x the current share value, nobody will even want to bother with that.

More of the same.
By iFX on 2/11/2008 11:53:44 AM , Rating: 3
MS: Yahoo! We want to buy you!
Yahoo!: No, thank you!

MS: Yahoo! We want to buy you!
Yahoo!: No, thank you!

MS: Yahoo! We want to buy you!
Yahoo!: No, thank you!

MS: Yahoo! We are going to take you over and you can't stop us!
Yahoo!: *gulp*

RE: More of the same.
By Jack Ripoff on 2/11/2008 9:46:16 PM , Rating: 2
"I am Billgatus of Borg. We are Microsoft. Lower your firewalls and surrender. We will add your technological distinctiveness to our own. You will be assimilated. Resistance is futile."

Lack of vision?
By i3arracuda on 2/11/2008 12:04:20 PM , Rating: 2
If you will not be turned, then you will be destroyed!

RE: Lack of vision?
By SlipDizzy on 2/11/2008 12:33:01 PM , Rating: 2
I believe, in the end, Yahoo will give up and accept Microsoft's offer. What would really suck for Yahoo is if Yahoo went back to Microsoft and Microsoft dropped their offer lower.

By omnicronx on 2/11/2008 2:39:05 PM , Rating: 2
On another note has anyone used iGoogle? I just started using it and its pretty cool. The only thing i am wondering is why they used the small 'i' in the name.. seems kind of like a lawsuit ready to happen.

Borgosoft's reponse...
By marsbound2024 on 2/11/2008 8:13:51 PM , Rating: 2
Resistance is futile. Yahoo will be assimilated.

Does anyone agree with me?
By InternetGeek on 2/11/2008 9:43:42 PM , Rating: 2
Does anyone think that rather than buying everyone and their sister, Microsoft should be offering Technology partnerships? Outsourcing contracts, Technology support on their Dev platform and stuff like that might make it a lot more attractive and less threatening than MS buying you all to anyone being offered an agreement like that.

Yahoo got stupid
By qwertyz on 2/11/2008 6:27:33 PM , Rating: 1
Just wait for Yahoo to go down then buy them for cheap that's all.

"My sex life is pretty good" -- Steve Jobs' random musings during the 2010 D8 conference

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