Yahoo is finally catching a bid. This time, of course, it’s coming from Microsoft, rather than investors enamored with the struggling search/content/advertising company. Early this morning The Company That Bill Built announced an unsolicited $44.6-billion deal for Yahoo, which is the sort of thing, as I said here earlier this week, the only practical upside for YHOO stock right now.
Okay, but is it a good idea? The honest answer is Yes, but investors shouldn’t expect much. Tying two share-losing rocks together — both companies are losing marketshare in search and in search-related advertising — won’t make them fly. The trouble, of course, is that MicroHoo would have much more scale, but a size problem is not why the separate companies are struggling against Google. Nor is it about innovation, which is what Microsoft’ Ballmer said on the call, where he lauded Microsoft Labs’ research prowess, and double-lauding how lovely it would be to have the two organization’s propereller-heads under the same roof. Wrong again.
The answer is that Google is dominating a tipping market — search and online advertising — and consolidation among competitors is about the only rational response. A combined Yahoo/Microsoft would become a truly material piece of the ad market, in excess of 40%, which is enough for it to finally offer Google a credible threat.
With respect to the price, no-one else is likely to emerge. Regardless of whether Microsoft is getting Yahoo for a great price, as some will say, there is no credible counter-bidder out there, especially not Google. At the same time, private equity bidders, who had been mulling Yahoo bids, will be put off by Microsoft’s cash horde, and its strategic intent, which would in any case keep a Microsoft bid out of reach of financially-driven PE pricing.
My take: This deal will happen, and it will happen at this price. Yahoo has no choice, because shareholders will beat it blue if Jerry, et al. don’t take the money. That said, it doesn’t make me any more optimistic about the combined company’s future in search & online advertising — Microsoft still thinks it’s about research spending, which I have refused here before — so forgive me if I don’t expect Google’s share price to fall through the floor this morning (more than it has from missing earnings last night).
Some questions I’d still like answered:
- What was Yang’s reaction last night to Ballmer’s call with the offer?
- What are the specific cost-synergy plans? And if any more smoke-blowing goes on about combining two great research organizations I’m going to hurl.
- What are the integration plans? The nightmare non-synergy scenario is preserving both company’s advertising and search platforms.
Feel free to add others.