Novice Investing - Big Boo to Yahoo

Date: Tuesday 13th 2008f May 2008 07:15:35 AM

Big Boo to Yahoo - 02/12/2008

By: Hari Wibowo

After a week of digesting Microsoft Corp's acquisition plan, Yahoo! Inc. (YHOO) replied boldly that it is rejecting a 62% premium bid price by Microsoft. What it tries to accomplish will be: 1) An increase bid from Microsoft, 2) An offer from another party. Neither of the above seems likely at this scenario.

First, Yahoo! reasoned that Microsoft's bid is below the underlying value of its business. This is where most shareholders raise its eyebrow. Most acquisitions give a 20-30% premium on share price while Microsoft's offer gave Yahoo a 62% premium. Granted Yahoo stock was getting pummeled before the deal was announced but I don't think everyone expected Yahoo shares to rise 62% over the next several months. Thus, an increase bid from Microsoft will be less likely considering that Microsoft's shareholders too will question such a rich premium.

Second, an offer from another party would be unimaginable at this point. Yahoo, being bid for $ 44.6 billion by Microsoft, is on itself a huge company. Google will not be allowed to overtake Yahoo due to antitrust issue. Other bigger companies such as Intel, General Electric are not directly in the pursue of such media content business. Amazon.com and eBay is even smaller than Yahoo. In fact, Yahoo was the most likely acquirer in the tech world considering its size.

Thus, it seems like both companies need each other to make this work. The more it drags, the more distractive it becomes for both companies. In the technology world, time is of essence. While competitors are developing new products to overthrow the status quo, Yahoo is busy fending off take over attempt. Meanwhile, Yahoo's employees are probably looking for a better place to utilize their talents, especially with the recent announcement of a 1000 job cuts right before Microsoft announced their deal. A year ago, Microsoft was rumored to bid for Yahoo at a price higher than its current bid. Perhaps, Microsoft should leave the thought of acquiring Yahoo this year and wait for another year. When Yahoo announced another earning disappointment, Microsoft can yet buy Yahoo cheaper than today's bid.

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Disclaimer: The sole purpose of this article is educational. This article is merely the opinion of the writer and is not in any way a buy/sell recommendation regarding Yahoo! Inc. (YHOO) or any other securities.

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