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Yahoo! (YHOO) Layoffs And Concern About Microsoft (MSFT) Deal
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The deal for Microsoft (MSFT) to take over the search business owned by Yahoo! (YHOO) and pay the portal company a share of the advertising revenue in the venture is looking worse as each day passes.
The assumption about a tie-up between the two companies in the search business has always been that Yahoo! could dump a couple of thousand people, most of them workers in the search end of the business. This would save Yahoo! seven figures a year in compensation costs.
On the revenue side of the plan, the Microsoft revenue-sharing payments would be large enough to give Yahoo! revenue a substantial lift.
All of those benefits are speculation and are based, at least in part, on Microsoft’s willingness to give Yahoo! a favorable split of the revenue from the merged search enterprises.
Yahoo! is about to lay-off a lot more people. According to The Wall Street Journal, ” Yahoo Inc. is preparing a significant round of job cuts, according to people familiar with the matter, the first downsizing by new Chief Executive Carol Bartz.” It is not the action of a company that is doing well and that will do well. A bad quarter from Yahoo! will help Microsoft cut a favorable search deal, if there is one to be cut.
The low end of analyst expectations for the quarter Yahoo! just closed is that revenue could be down by almost 20% and EPS could drop 40%. If those numbers are true, Yahoo! will not be doing a lot better than posting a 10% operating margin. Microsoft will look at those figures and see that Yahoo! has to have a joint venture in search to flourish as an independent company. Without a transaction in the search business, Yahoo! has nothing positive to show its shareholders.
Yahoo! is not going to get a good deal from Redmond. Microsoft has moved into a position where it can push Yahoo! around.
Douglas A. McIntyre
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