Do You Yahoo? Microsoft Does
The deal makes snazzy headlines to cover the first loss in nonfarm payrolls since August of 2003 and yet-unresolved turmoil in the credit markets, but the two companies have been talking for over a year about a proposed merger. Yahoo has repeatedly shunned Microsoft's overtures, choosing instead to focus on internal reorganization to revitalize its slumping brand. In the end, Microsoft resorted to making a technically hostile bid for Yahoo, putting to use some of the $7 billion on its balance sheet in the $44.6 billion offer.
There are two pressing questions the announcement of this deal raises. The first – and maybe most obvious given the ironic timing of the deal – is Microsoft's desire to grow its online presence and take market share away from Google (GOOG).
Google dominates the online search space, with over 56.3% of all searches according to the latest Nielsen ratings. Yahoo comes in second with 17.7% of searches and Microsoft third with 13.8%. And while a united Microsoft-Yahoo would still barely tally half as many searches as Google, Microsoft has been slowly chipping away at the gap between the two companies. Of the three, Microsoft was the only to increase its search share from the previous month and has nearly doubled its share since December of 2006.
The second question – and the one that will echo outside the world of clicks – is what the deal means for the technology sector going forward, and if the hefty 60% premium Microsoft paid is indicative of overly pessimistic valuations for technology companies. Minyanville contributor and senior MarketWatch columnist Herb Greenberg warns investors not to glean too much from the deal:
This is a strategic offer by a cash rich company going through menopause and looking to blossom in its next phase of life….[this] is a single-headline event, driven by one wealthy company's strategic needs, not a reflection of life returning to the way it was before the bubble popped.
Early indications of the Justice Department's interest in examining in the potential anti-trust implications of the deal mean we may have to wait for months to find out the true repercussions of the merger.
Hoofy sees this deal as an indication that the worst of the credit crunch is behind us, fears about an economic slowdown are overblown and cheaper money will refuel the buyout boom that buoyed stocks through the middle of last year. Our bovine friend may be proven right in the near term, but the door to the credit market moves closer to shut each day, and until that changes Hoofy would be best to keep his gloating to himself.
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As usual you enlist debate.
These statements (not yours) " There will be no calamity, Fed is treating the problem, they will use any accounting principle they choose- the stupid folks behind the curve would not recognize a cycle if they were in a washing machine, hardly any downticks, deploy all your capital now, there will be virtually no pullbacks when the Fed eases like this, refi maddness is everywhere". You point about flying cover for non-farm payrolls is astute. Is the complicit media cycle just beginning?
This all seems a bit audacious to this observer but I must say I respect the unlevel playing field. I wonder if some of the Villes pragmatic profs. might weigh on these.
I think the length of the much discussed bear, all of Nov. and 23 days in Jan. most likely cleansed any difficulties or excess, mmm. One other query, does this not merely actuate the recompression debt/risk cycle, what happens to risk aversion or are the "any accounting principles chosen" a solution? Do markets have to reflect the economy especially when it is so very meaningful they don't?
