It is the best news that Yahoo! (YHOO) investors have had in years. Microsoft (MSFT) has offered to buy the company for $31 representing a total equity value of approximately $44.6 billion. Yahoo! trades for $19.18.
The proposal would allow the Yahoo! shareholders to elect to receive cash or a fixed number of shares of Microsoft common stock, with the total consideration payable to Yahoo! shareholders consisting of one-half cash and one-half Microsoft common stock. The offer represents a 62 percent premium above the closing price of Yahoo! common stock on Jan. 31, 2008.
With Yahoo!’s latest earnings showing revenue moving up less than 10% and operating income actually falling its shareholders are getting more than they could ever have bargained for. A slowing ad market is likely to take its shares down further.
The bid is a sign that a turnaround for Yahoo!’s new management is a long way off. If Wall St. believed in their current plan, Microsoft would have a hard time making the offer.
A buy-out of Yahoo! would be a coup for Microsoft and its MSN operation. According to comScore, Yahoo! still has more unique users than Google. MSN and Yahoo! together would have about 35% of the search market. Google has over 50%, but separately the other two companies had no chance to catch it They may now.
MSFT will probably fire another 3,000 to 4,000 people at Yahoo!. That would make the deal very profitable for Redmond. If it sells Yahoo! Japan and the portal’s piece of China e-commerce company Alibaba it can cut the purchase price by about $10 a share.
Yahoo!’s days as an independent are over.
Douglas A. McIntyre
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