Microsoft: The Attack of the 50-Foot Probability Monsters

Apparently all the Microsoft & Yahoo equity analysts got the same memo. There all sorts of reports coming out this morning laden with probabilities of the MSFT/YHOO deal being completed. We have BofA at 55%, and Susquehanna at 75%, and others in-between.

Hmmm, someone should a build a betting book. Oh wait, they have. It’s the stock market — which says Yahoo gets acquired, but the spread to Microsoft’s stock is widening, implying more cash and less MSFT stock.


  1. InTrade has M&A markets, though I don’t think they’ve created one yet for MSFT/YHOO.
    I don’t think there’s much betting in these markets, but the way they are designed they are not entirely redundant with what can arithmetically be derived from MSFT / YHOO prices and offer level.
    To make a bunch of trivial points, the possibility of the offer level changing distorts the above calculation. And with the InTrade market you don’t have to make an assumption of the cost of borrowing MSFT to short as you would above. Finally, InTrade has them for various maturity dates so reveals some information about the timing.
    Of course, in reality the tiny trading in InTrade makes the prices much less meaningful.