Tag Archives: yahoo

Hostilities erupt between Yahoo and Microsoft

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Hey, looks like now it’s an official *hostile takeover* attempt from Microsoft in the battle for the internet giant Yahoo.

Yahoo declined Microsoft’s offer of last week and in this press release Microsoft basically declares their intention to duke it out.    I’m surprised they have not upped the ante yet, but perhaps they are waiting for more drama and information before making a “final” offer to the Yahoo board before taking this directly to Yahoo shareholders.    Although I think most shareholders would take the MS offer it’s clear the *big* shareholders like Jerry Yang don’t want to, so perhaps Yahoo can win a proxy battle for the company.    I have a hunch however that the institutional investors, and the legions of small time folks like me, would jump at a 34+ offer and probably even take the current one unless Yahoo shows a lot more signs of life than screaming out the current rallying cry “We are fighting Microsoft!”

Microsoft PE=16, forward PE=13!

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Wow.    As Yahoo rebuffs them and Microsoft shares continue to take a beating from  what appears to be Yahoo aquisition unhappiness, the PE of this mega company is looking nothing short of spectacular.    Some would argue that Microsoft is slowly dying due to the massive changes in the way people and businesses use software, but it’s foolish to think Microsoft’s prospects are dim under the current conditions.   In my view they are simply making too much money, and remain a key player in a key industry, to deserve this low market valuation.  

If the Yahoo merger happens the PE at MSFT will take a hit, but it would clearly remain well under 20, a very modest PE for a company that still has significant growth potential.

But, I guess like other investors I’m a herd animal and fearful, so I won’t be buying MSFT….quite yet.

Disclosure:  Long on Yahoo, no Microsoft position.

YaAOLhoo? Are you kidding?

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The Times of London is, I think, exaggerating a rumor that Yahoo and AOL might merge in an effort to find off the Microsoft takeover of Yahoo.      I don’t even think this is necessarily a bad idea if you made sure the management of both companies had the necessary shakeups to turn *both* companies around from what seem like desparate corporate positions.  However it just doesn’t ring likely to me at all, and begs the question of how the Yahoo board could make all this work *and* avoid the wrath of the market which probably will view the Microsoft offer as far more favorable than a pie in the sky possible AOL deal.    That said, I’m open to this possibility.    The main thing I’m *against* is more of the same from Yahoo.    Profits and share price matter more than any anti-Microsoft sensibilities, and the board should keep that top of mind at all times. 

Disclosure:  Long on Yahoo 

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.

Yahoo Live … dies

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Update:  Chad replies in comments below from the Yahoo Live team and I certainly agree that the rumors of the death of of Live were greatly exaggerated.  

Yahoo strikes again with what looked like a neat application – live streaming video for everybody – but woefully inadequate capacity to handle the huge interest in the beta.    The application sounds promising – you plug in your camcorder and start streaming live onto the web via your Yahoo Live account.   Although several other places have these services, Yahoo has the huge population and umm … server capacity …  to make this work for the millions of people who’ll be interested in chatting in this fashion.

Hmm – not sure if I should be warming up to the video socializing idea I viewed skeptically earlier in the year, though as I noted before I’m not at all bullish on the monetization potential of this type of communication, let alone monetization of video clips like those at Youtube – only the best “shows” with clever, engaging, or sexy people will do well in that regard, but I think this is another aspect of globalized social networking that is the new online paradigm. 

Who projects server capacity over there?     Based on the current home page of Yahoo live it appears it is only handling a few thousand streams when the thing went down.     

Matt’s got a play by play of the death of Yahoo live.

Robert Scoble on other streaming video applications.

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.