Tag Archives: microsoft

Microsoft v. Yahoo. They can’t seem to make an offer Yahoo can’t refuse.

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The big tech story remains the Microsoft offer to buy Yahoo, and on Wednesday a meeting at the Yahoo’s HQ in Sunnyvale, CA may seal the deal, though it’s more likely that negotiations will continue for some time after that meeting.

Microsoft may be wondering about the wisdom of the aquisition given how hard the market appears to have punished them for the offer.   Although other tech stocks were down last week, Microsoft’s 13% drop amounted to a loss in capitalization equal to almost the entire value of the Yahoo deal.   ie you could argue that even if Yahoo sold themselves to Microsoft for $1 on Wednesday, the boost in the merged company value would not make the two any more valuable than *Microsoft along* was worth before all this began.     That’s a lot of financial simplification but Microsoft must have at least somewhat more skepticism about all this than they did as they made this offer.

So, what are the likely strategies here?     It is clear Yahoo will reject the current Microsoft Offer which amounts to about $30 per share, and they are strongly rumored to be asking Microsoft for $40 per share.   I’ll eat my keyboard if Microsoft agrees to $40, but I do think they may immediately counter offer at about $34 per share.     Of course unless the inclinations of the Yahoo board change they’ll reject this as well.    I’m growing somewhat suspicous that the unreasonable $40 amount is not really an attempt to boost the sales price – it may be the best way for the Yahoo board to send negative signals, try to wait things out, and give Microsoft more chances to back out.   If Microsoft gets cold feet from the share price drops or Yahoo’s chilly reception of the merger idea, and then backs out of the deal, shareholder lawsuits against the Yahoo board are less likely and weaker.  The Yahoo board will simply say the $40 was a negotiating tactic that went wrong rather than a tactic to kill a good deal.

However I don’t think Microsoft is going to go softly into the night on this, and that will make all this very interesting.    They’ll offer more, and at even $34 per share Yahoo would be getting an amount approaching a 100% premium over their recent 52 week low of about $18 per share.  This is the price YHOO traded at following the bad guidance from the recent earnings call.  

It strains the credulity of this shareholder to see how the Yahoo board can argue that Yahoo has a realistic shot at being “twice as valuable” as they were last week in a reasonable time frame.   In short, we all know they can’t.    This may be a defect of market forces or employee attrition or lazy management or low morale or Google defections or whatever, but left to her own devices Yahoo is pretty much going nowhere fast.   I’ve been bullish on Yahoo for several years now and remain convinced that the company can eventually turn things around.  However I think this aquisition may be 1) part of that turnaround process and  2) presents an offer far too good to refuse without risking a share price meltdown.

So, looks to me that on Wednesday the Yahoo board will turn down the current offer, Microsoft will up the offer to about $34, and Yahoo board will turn that down too (probably the following week).  This will lead to nothing short of a Yahoo shareholder revolt as anxious investors watch a company throw away tens of billions of birds in the hand arguing they are seeking a few more birds in the internet bush.

Ha – even Mini Microsoft hates the deal.   An interesting salary debate over there along with the normal absurd whining from developers over their already very large salaries. 

Disclosure:  Long on Yahoo (but not for long!?)

YahoOliver Twist to Microsoft “Can I have more please, sir?”

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Ina is reporting over at CNET that Yahoo is going to reject Microsoft’s current offer of about $30 per share and ask Microsoft for $40 per share at the Wednesday meeting.    I’m still in the camp that says Yahoo is not in a good negotiating position to make this demand, though contrary to what better connected folks than I suggest I’m guessing Microsoft will up the offer to seal this deal next week.   I say they’ll offer $34-35 at current MS pricing.   This is more than any reasonable definition of “fair market price”, and Yahoo’s board could only reject this at their huge legal peril. 

 I’m not a fan of class action lawsuits but Yahoo can probably expect a gigantic one if they turn down MS and then Yahoo tanks again.   This would probably  be resolved quickly by a board decision to go ahead and sell. 

I’d love to be a fly on Eric Schmidt’s office wall right now as Google’s role in all this is really intriguing.   They can let the merger go and assume MicroHoo can’t be competitive with Google, they can help Yahoo with monetization in a bold way to prop up Yahoo’s stock but effectively keep their one true competitor alive, or they can just sit and wait for it all to shake out.   Most analysts seem to think Google’s in fine shape competitively regardless of their decision and I’d agree with that.   In fact Yahoo’s stubborn refusal to look for the winning Microsoft combination here may be yet another nail in their corporate coffin.    I can’t help but think this is ego-centric thinking rather than the broad, practical, and innovative thinking that built Yahoo in the first place.    

Given that YHOO was trading well under $20 last week I just can’t see how they can make a strong case to Microsoft (or shareholders) that MS needs to pay a premium of over 100% on this deal.    That said, I do think Yahoo is undervalued in the technological sense – they have much of what Google has and have much of the potential Google has, yet they are capitalized at about 1/4 Google even with the recent Google stock meltdown and Yahoo stock upswing from the MS offer.   Yahoo’s a great company. Unfortunately they have failed dramatically for many years to use this greatness to be profitable and they have failed to make the case to Wall Street.  

What is the right answer in all this?     It’s simple:

1.   Microsoft should counter the $40 request with an offer of $34 per share at Wednesday’s MS stock price.

2.   Microsoft will keep Yahoo intact largely in current form for six months.   Yang and the Yahoo board will be given SIX MONTHS to kick whatever asses need kicking to make Yahoo more profitable.   If Yahoo’s looking healthy in six months they’ll stay on this course, but if they can’t fix in six, send them to the sticks and MS will take over in heavy handed form.

3.  Reorganize the languishing publisher programs at MS and Yahoo to compete more effectively with Google Adsense, which has a virtual monopoly in this space and accounts for over 40% of Google revenue.

Disclosure:  Long on Yahoo

Yahoo – Game Over Dudes?

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Kara Swisher over at All Things D  has an excellent post about the Yahoo Microsoft merger where in my view she suggests correctly that the game is pretty much over.    Google won’t do much to get in to this mess (they’d almost certainly be prohibited from aquiring Yahoo due to antitrust rules), and Microsoft is unlikely to up the generous offer which now amounts to about $29-$30 per share depending on Microsoft’s share price at the deal.   Most importantly, the Yahoo board cannot turn this down without the risk of lawsuits from now until the singularity.    If Microsoft had only offered a few dollars above the sagging YHOO share prices last week this story could be different, but I cannot see how the Yahoo board can come up with a plan to keep the stock around $30 per share AND turn down the Microsoft offer.    I suppose Google might sweep in with a good enough partnership that investors would not be spooked, but that now appears less likely and frankly if anybody might have a hint about that it would be Kara Swisher who has significant insider information about Google.

Ergo, MicroHoo appears to be coming soon to an internet near you.

Disclosure:  Long on Yahoo.

Split Up Yahoo?

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Fred Wilson’s a sharp guy and his Yahoo plan is basically to outsource search to Google and dismantle the place into Yahoo’s many valuable components like the stake in  Alibaba.    I’m intrigued by this creative proposal though I can’t see Yahoo doing many of these things.  

Probably the big unknown in the big Microsoft+Yahoo equation is whether Yahoo will be willing to concede the search battle and use Google search and Google monetization.    In the short term this would bring more profit to Yahoo, but long term effects are not clear since they’d be effectively a prisoner to Google who would control a key function of Yahoo’s business.    However  Yang and the Yahoo board would likely see this as a superior situation to ownership by Microsoft.     Google’s stock has been dropping severely but they could still sweeten the pot with other helps, so I’ll be watching for better offers from Microsoft and counters from Google in the coming weeks. 

disclosure:  long on Yahoo

   

Yahoo and Google BFF?

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Reuters reports that Yahoo really wants to find a way out of the MS deal, and Google is offering *something* though it’s not at all clear to any outsiders what that something is.    Probably a partnership to help Yahoo monetize all their traffic using Google tools and perhaps Google search, though I’m somewhat skeptical that Yahoo can come away from this with a valuation boost near the value of what MS has offered.

If Microsoft is smart they’ll let Yahoo be Yahoo, with contractual assurances that Yahoo can keep on innovating and doing what they have done well for some time in the overall internet and Web 2.0 space.  They’ll let Yahoo retain their brand and culture, and basically keep things the way they have been minus the crappy monetization.   In turn Yahoo will have a few years – with the newfound clout and help of MS – to turn around the crappy monetization, bad morale, and loss of search share.  

disclosure:  Got the Yahoo Stocks.  Loving the Yahoo stocks.  

Google to the YahooRescue?

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Google’s concerned that Microsoft could poison Yahoo and make it less open, a state of affairs Google feels created both Yahoo and Google.  I’m sympathetic to some degree to their points, though I think Google has more than enough internet opacity in their critical search ranking practices to make me skeptical of all the whining about how Microsoft won’t play fair and keep things “open”.   

Google has been more open than most, but far less responsive to ranking problems and search issues than they should be.   To the extent MS + Yahoo brings more competition to the space it might help Google see the light and practice more of what they preach about transparency.   Just a quick example of the lack of transparency – Google does not share with publishers the “revenue share” percentage for your own site.    This would be a totally unacceptable practice offline, but in Google land it’s just another example of the power of a virtual monopoly on search monetization.

Meanwhile, Henry Blodget has some  great advice for Yang and Balmer, but it’s clear to me that neither party will view things this broadly.  I think there is only small difference in the IT worldview of management at Yahoo and Google, but a world of difference with MS. As a shareholder I’m loving the Google overture to Yahoo which should boost the share price even more.  This is a fascinating situation because Google has been happy to watch Yahoo whither on the search vine.  Now Google needs to consider a powerful partnership as a defensive attack on the Microsoft search potential after an aquisition.  I think this in part relates to a key factor that is underreported: Yahoo’s search quality is now comparable to Google’s according to many objective measures.

Yahoo’s “response” to Microsoft

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Wow, talk about saying nothing.   Yahoo’s official public response to MS is a blunt “we’ll consider it”.   Given that the offer was so high above Yahoo’s share price, especially after the earnings call meltdown on Tuesday, I’d hate to face shareholders after rejecting this offer which would likely send the stock down.    I just can’t see Yahoo refusing this in light of lackluster performance over the past few years and a questionable future.

The word in tech land seems to be that Jerry Yang really does not want to sell to Microsoft.    Understandably Yang probably wants more time at the helm to try to turn Yahoo around the good old fashioned way:   Hard work.     But I don’t think he’ll win this one.    C’mon Jerry – your net worth just went up what, a billion dollars on the Microsoft offer?   That’s got to be good for something.

 Dis Closure:  I got the Yahoo Stox.   I wants them to go up.

Why Microsoft+Yahoo>Google

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The Yahoo Microsoft Merger is a very good idea.   Although Yahoo is in some ways a different culture from Microsoft, It seems to me that both of those corporate cultures have become bureaucratic, sluggish, and uninspired when compared to Google’s freewheeling yet very productive approaches.    Yet very importantly, the thousands of Yahoo and MS employees are very impressive, and certainly capable of great things as the online world is reinvented on a regular basis.

If Microsoft can pool the innovations of the LIVE project with Yahoo’s superb developer support programs, and hire and inspire more people to have the evangelical zeal of Googlers, it could be a whole new online ballgame.

The big reason this makes sense is actually very simple, yet is seems to be missed by many analysts now ranting about this as a bad idea.    It’s a mathematical reason.    The traffic from Yahoo+ Microsoft is very substantial.    Yahoo had more total traffic than Google before the merger – it just didn’t have as much of the lucrative search traffic and did not monetize the traffic as well.  With Microsoft traffic, the combined Yahoo Microsoft company will still initially lag Google in search traffic, but it will have *far greater* total web traffic.    This is hugely significant, especially if Microsoft begins to focus more on how important it is to drive potential searchers to search portals inside their own network.    Fear of lawsuits and lack of interest in what for Microsoft was a small revenue source led them to failure in the search business.     Although the LIVE project was inspired, search share still lags so far behind Yahoo and Google that rolling all this into Yahoo search makes a lot of sense.       The combined company would control an enormous share of  global web traffic, and it won’t take too much imagination or innovation to redirect this far more profitably than now.  

Microsoft remains the overwhelmingly huge legacy player in the information technology space.    Google is the clear leader as the new  player.   Can Yahoo inject enough energy into the monstrous Microsoft machine to compete effectively in the online space?    I think there are many potential pitfalls, but on balance  you need to do the math, which says that in online footprint, content, and market capitalization:

Microsoft +Yahoo > Google.  

News release from Microsoft

Disclosure:   I have Yahoo shares.  In fact I doubled them on Tuesday!  Yippee!

Microsoft offers to buy Yahoo

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I’m feeling kind of smart today after feeling stupid *yesterday*.    I had doubled my Yahoo stake before the earnings call, wrongly thinking that a good report was in store.     However just fair earnings and poor guidance knocked the stock back a few dollars the next day.     But it’s surging today as Microsoft has offered 44.6 billion for Yahoo, effectively making it worth a lot more than yesterday.

Perhaps the price hit after earnings drove Yahoo to some sort of strike point for Microsoft.    At CES I  think I may have been right to suggest there were high level meetings between Gates and Yang regarding a Microsoft Yahoo Merger , clearly MS must have been thinking about this for some time.  Rumors have been swirling for over a year.

Bill Gates’ Critics – they just can’t handle the truth!

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I get so tired of reading the innane drivel criticizing Bill Gates’ excellent vision of global prosperity through more innovative approaches to global capitalism.    Gates is right on, and this should be obvious to those who care about capitalism OR who care about bringing prosperity to the billions who suffer in developing countries.

Over at TechCrunch people are ranting irrationally about bootstrap prosperity in the selfish and foolish way US technophiles often do, oblivious to the causes and circumstances of poverty in the developing world and without any compassion for the *hundreds of millions* of children mired in poverty around the world.  

Here’s how I vented over there:

Bravo to Gates. Many of the comments here floored me with their lack of insight.
First, to suggest Gates is not sincere is nonsensical. His record of philanthropy is clear, focused, and brilliant. Whatever you think of Microsoft’s history of sometimes ruthless corporate dominance you simply are not paying attention to think Gates vision of global prosperity is not genuine. I’d even go so far as to suggest Gates fortune was made largely through the purchases of other affluent people, and now he’s giving most of it to the poor. That is a virtuous cycle if I ever saw one.

Second, the notion that unfettered capitalism is the most expeditious way to feed the poor and improve the infrastructures of poor countries is naive and dangerous. Even Adam Smith noted that types of intervention are needed to preserve the integrity and power of free market forces. In nations that suffer from corrupt or short sighted leadership and cumbersome bureaucracies (that is to say, all nations), we need to bring modified capitalism to bear ASAP if we want to stabilize prosperity and lift the billion+ people who are simply out of the virtuous globalized capital loop. Gates point is that more innovative approaches to capitalism will benefit everybody, and he’s spot on.

Meanwhile Open Sourcer Matt Asay is conflating open source issues and Microsoft with global development, seeming to suggest that the fastest way to global prosperity is to bring Open Source to the world and kill Microsoft.   Here’s what I wrote over there:

No. Emphatically. You are correct that Open Source is great, and also that Microsoft has strategically fought against open source. But Gates is correctly working to reallocate personal and corporate responsibilities. He’s saying that more of the big profits and big innovation should be focused on improving the lot of those in the developing world. This is a profound approach and a virtuous one.

I don’t think it is reasonable to ask Microsoft to be a key player in dismanting decades of their corporate dominance, even though I’m happy to see that fade. It’s also unreasonable to suggest the benefits of Open Source development will necessarily flow to the world’s poorest people. More likely they’ll flow to those of us in first world who are able to take advantage of them. I’m big on Open Source, but hardly think Microsoft should be a leader in that space. I’m even bigger on focusing attention on developing world problems and the kind of conflation of issues here simply confuses people.

Gates is speaking today at the Davos conference.   It would be nice if  people actually listen to what he is saying.