So apparently the Yahoo brass didn’t take Microsoft’s public offer to buy them as well as could be expected (hey, at least their shareholders finally got a break – the stock jumped nearly 1/3 on Friday). They’ve been working all weekend (I suspect they canceled their Super Bowl tickets last minute) to find someone, anyone, to make a competing offer. Barring that, they just want to try to increase the offer, from the current $31/share to at least, according to a Yahoo insider, to $35-$40/share.
But the fact is, a perfect storm of factors is going to lead to a Microsoft takeover of Yahoo in the very near future, perhaps without any price increase over the original offer. The debt crisis means raising meaningful amounts of debt to leverage the transaction is impossible (the largest debt financed transactions in the recent past were in the $4 billion range, not nearly enough to do this deal). And Yahoo continues to spiral downward financially, making potential buyers leery of buying a dog. The fact is, the deal makes sense for Microsoft. It may not make sense for anyone else.
All that realistically stands in the way are government vetoes of the deal (DOJ review under Hart-Scott-Rodino and related European Union regulations). Or, perhaps, a slim chance for a certain White Night to appear and save the day. Former Yahoo COO Dan Rosensweig, who left Yahoo in late 2006, is rumored to be working to put together a complicated deal that involves both NBC Universal and Facebook. More on that below.
For my thoughts on why the Microsoft deal makes sense, see my comments on Fox Business earlier last week before the deal was announced (starts about the 3:30 mark). In that segment I say Yahoo will either need to partner with Google on search advertising or get sold off to Microsoft or someone else. Looks like Yahoo is now considering that Google deal. “Citigroup Global Markets analyst Mark Mahaney in a Friday research note estimated that Yahoo could boost its cash flow more than 25% annually by outsourcing all its search advertising to Google,” says the WSJ.
Here’s a list of Yahoo’s potential options. All of these are rumors, some make more sense than others.
News Corp.
News Corp. was scrambling to put together a deal on Friday and submit a competing bid. No takers, according to the private equity guys we spoke to, and it’s unclear that they’ll really want the asset after they’ve taken the weekend to consider it. For now, count News Corp. out of the race, although if Yahoo gets sold off in pieces, they’ll be likely bidders for some of the assets.
Apple
As a $118 billion company, they have the market cap to make this deal happen. But Apple hasn’t bought a company since 2002, and it’s unlikely they see Yahoo as a prize. People would love this deal, but it isn’t going to happen.
Pure Private Equity
Private equity shops are falling into two camps this weekend. A few are mulling around the idea of an offer, but the debt market keeps getting in their way. The rest are simply trying to figure out if a competing bid of any kind is likely to surface on Monday, so that they can trade the stock for a profit. A handful of them have called me out of the blue today to explore the News Corp. bid. None of them see a private equity bid as realistic.
eBay
Yahoo and eBay have been long time sweethearts – a Yahoo acquisition of the company in March 2000 was killed moments before being publicly announced over last minute details derailed it (cultural stuff, we hear). At the time, thought, eBay was worth just $20 billion or so to Yahoo’s $70 billion. Today, the companies are about the same size at just under $40 billion each. eBay has the market cap (just) to enter a bid and remain the controlling entity. But they are a company in transition, and have their own problems with growth. Their long time CEO is stepping down. It’s unlikely eBay will step into the ring.
Soverign Equity Funds
China, Norway and some Middle-Eastern nations have large enough sovereign equity funds to make an all-cash bid for Yahoo. But why would they?
Dan Rosensweig, The White Knight?
Dan Rosensweig left Yahoo as COO in late 2006, and has since joined Quadrangle Group, a large private equity shop. He has the motive to make a deal happen (to return triumphantly to Yahoo), and some of the tools (large amounts of money at his disposal). But the debt crisis affects him as much as the other private equity firms looking at the deal.
But this is where it gets interesting. From what we’re hearing, a plan is being considered that sells off Yahoo’s media assets to NBC Universal (Music, TC, Sports, Finance, Entertainment, OMG, food, health, etc. – everything except Video). What remains – Yahoo’s core search and advertising assets – would be packaged up and merged with Facebook. Yep, Facebook. That would likely result in Facebook becoming a public entity in the very near future.
The deal is creative as hell but would be difficult to sell to Yahoo shareholders, who understand the value of Microsoft stock but not Facebook’s. Breaking Yahoo up and selling it in pieces also means a non-tax-free deal, which makes it less attractive than what Microsoft is offering. I’d love to see Rosensweig try to quarterback this deal, or something similar, but there are too many hurdles.
Game Is Over
The Super Bowl isn’t the only game winding its way to an inevitable conclusion today. It’s become more and more clear that a competitive offer will be coming this week. And even if it does, Microsoft will likely just increase their bid. Yahoo’s destiny seems determined – to become an operating subsidiary of Microsoft Corporation.
Michael, I value your opinions but the thought that Apple would ever be interesting in acquiring Yahoo! is ludicrous.
Same goes for ebay
“…Yahoo’s destiny seems determined – to become an operating subsidiary of Microsoft Corporation.”
Sad, and mildly nauseating. Goodbye Yahoo, I will miss you.
Signed,
Todd
Yahoo user since 1995
P.S. See you in Hell Ballmer
not really sure how to answer that, Mr. anonymous commenter person. i’ll let the post speak for itself.
Another option is for yahoo to go on the offensive and acquire another asset to effectively make the new combined entity too big, too dilutive, or too non-strategic for MSFT to want to acquire both companies.
Hasnt happened in a while, but it was a common tactic during the 80’s corporate raiders days as an anti-takeover defense.
In this unlikely scenario, I suggest that take a look at buying eBay. (instead of the other way around)
your report on a potential rosensweig deal which would involve facebook is just as ludicrous to me to believe…but i do believe you. its a great indicator of how out of control the internet sector is and that a major correction will be coming. that kind of a merger has disaster written all over it.
facebook is an overly hyped company that really has yet to prove itself, and zuckerberg is no ceo.
I really love the idea of Yahoo and eBay merging (or a eBay buyout).
It might not be likely but it would make a lot of sense. Yahoo was big in Japan, eBay wasn’t.
eBay own skype, and Yahoo has a huge IM base. Along with Google checkout vs paypal. In one swoop Yahoo/eBay would have most of the tools needed to challenge Google again.
Yahoo is great, though some services are still old-fashioned.. in any case, expecting more YHOO rise this week…
great halftime show,, thanks mike
Rosensweig’s play, to create a “Holy Alliance” that can save the internet to become a Google vs Microsoft game, will have a chance to happen if he caters to sovereign funds; these people seems the only to have the money to, at least, make Microsoft a run for its money. At least, he should start to build a “Third Way” (sorry for the word), because it’s becoming obvious that a lot of (powerful) people doesn’t like an internet two-horse race.
I agree MS timed this perfectly. Some of the banks and institutes have lost more money than this on the subprime mess and I can’t see their shareholders and investers being pleased that their money is being put behind a bid for a company on the down.
so what happens if the board rejects the deal? I think they will do under the pretense that it under values the company? Do MS just start buying stock and get on the board via that route….
mike since these guys cant get near the end zone i just did this play..
if fb is worth 15 to steve at the numbers mark announced to the world the other day and yahoo is worth 44 now and all the stats in the space are declining , even homes in atherton, the bigshots cant get banked to takeover the bids or at least inflate the price, google is concidered underperforming with a bill in free cash last qtr and hyper growth, its not a new bubble ,, the boys need to write a new song..
its chaos
I think microsoft called everyones bluff
They are the only co prepared to offer a bid, now all the nervous parties are trying to counter attack
How do you rate?
Check out http://www.yupnup.com
http://www.yupnup.com
Great piece. Very informative.
Even if Yahoo’s do not want to admit it, Microsoft is their best option at this point. They have struggled the last four years to do anything but lose market share. Very little innovation, and the end-all-be-all Panama is still struggling.
Given the current stock and debt markets, how likely is it to any other party besides News Corp will find financing beyond their own stock to buy Yahoo?
Next up, combined Yahoo and MS is likely to merge Facebook into the mix with an all stock deal.
As much as I hate this to happen, I have a very bad feeling that Yahoo will end up with Mugro$oft
If the Super Bowl is any indication of what may happen with this deal, it’s that you never know what’s going to happen.
Of the sovereign funds, count Norway out, their $200 billion fund has rules that state that they cannot hold more than a few percentages of each company they invest in.
Are you sure you said something right on TV or Techcrunch?
It would hurt investors if you said something wrong. You should let Yahoo decide. Besides, all the journalists don’t work Yahoo.
It’s executive decision: Bill Gates and Jerry Yang…
Not you or anyone else. Let’s wait… Until they decide.
I can´t think of many good reasons, why Apple should buy Yahoo. That´s not their business. Would only make sense if they wish to compete in one more sector with Microsoft ….
I don´t see a white angel coming. There are only a few companies who can afford such a deal. Even Newscorp and eBay would have big problems to do such a deal. And Microsoft has the possibilites for another counter offer.
I would like to know what the big Yahoo stockholders say about this deal. Alibaba, Yahoo Japan?? Any word from them?
Michael, here is a darkest of dark horses: Cisco. Remember, you heard it here first.
Reason: Mail + IM. Remember Cisco’s tiptoe into social networking.
(What do I get if Cisco does throw its hat in the ring?)
“The Super Bowl isn’t the only game winding its way to an inevitable conclusion today.”
Well Guess again. Giants have pulled the biggest Super Bowl upset ever.
You know… I hate when media crossed the line. Saying something like “rumors… rumors… rumors… ” How do you know if true? Did you get transcript from all the executives? Anyone can fabraicate stories.
Please let executive decide. They are leader. I would listen leader’s voice than media.
@23. I’m waaaayyyy excited when Giants won the super bowl !!!
Microsoft is kidding.. It will never buy Yahoo.
http://www.jhatak.com
I don’t watch conservative & right wing media from Fox News. Sometimes, I watch MSNBC which is parent Microsoft.
I also like BBC news the most. They don’t take political side. Plus, they don’t have commerical either. If I have money. I like to continue to fund BBC news.
@22
I like the way you think. I brought up CSCO on the SAI board couple days back. Though, the timing could be little early.
you know, large IT companies could also think about buying Yahoo…..not the ones who regularly dab into the online market. Yahoo could be their first foray into the online world. can think of any?
I’d love to see a buyout firm’s breakup value analysis on Yahoo.
It could be that Yahoo sold in pieces (Yahoo portal, Yahoo search business, the old Overture business, Yahoo mail, Flickr, Alibaba investment, Yahoo Japan, etc) is worth much more than $44 bn.
I think it would be great if Yahoo could maximize the share holder value by selling all their media/portal properties to Google and Search to Microsoft. This will create a very competitive environment (between MSFT & GOOG) going forward both in portal and search businesses. It will also bring in much higher value for Yahoo share holders.
Yahoo! might be a perfect target for Barry Diller. With the way it’s spiraling, very soon he’ll be able to afford it.
Yahoo! is a broken business. It is only valuable to MSFT because they need to catch GOOG to justify the AQNT move—and they continue to be dogged by the fact that they blew it re: the Internet in general. This move is a way for them to help fight their own demons psychologically.
But the fact is Yahoo! is a broken business and nobody else wants it. Yahoo! spent years getting to this point. And now they get what they deserve. Or in the case of Yang and Decker they get rich but dont deserve it. More so Decker than Yang. At least he started the thing. She just ruined it.
@27 – BBC non-partisan? think again. they demonstrate as much bias and liberal tendencies as many other media outlets. Check out this blog for more evidence. The BBC also have a digital arm funded by advertising, and recently started to display banner ads (sadly) on their news site for non-UK readers.
Google has no incentive to artificially prop up Yahoo by accepting an outsourcing deal. It’s in Google’s interest to simply sit back and watch Yahoo die, or be carved up in a fire sale.
The problem is that Yahoo can no longer justify its existence. It’s core asset — the Yahoo website — is a loss-leader and doesn’t offer a single service (except maybe for free email) which isn’t available in a much better form elsewhere.
this would’ve been such a welcome marriage if microsoft had a better culture that was close to silicon valley. it’s unfortunate, and it’s inevitable.
at this point, i think swapping facebook for panama could be an very good out for yahoo.
If Microsoft buys out Yahoo, will the name change to Microhoo? They will have an interesting logo, huh?
mike,
I like peter mac’s ebay proposition. Please forward his email addr to them so that they can tap him as their new CEO.
How about Novell as a possible Yahoo suitor? They are flush with cash, and in need of some street cred.
Cisco is kicking ass and doesn’t need this headache.
Horn
funds can’t even raise money to buy an office building with paying tenants in it so it is unlikely anybody can step in for this risky maneuver right now.
what i will say though is this, that all this might come down to taking the media assets – i do agree with you on this. We saw it with the Time Warner deal, and we will see it again, whether it is this deal or not.
If the opportunity to control another media asset/outlet is financially feasible, it will happen.
This is history in the making.
A google partnership makes a lot more sense and Wall Street would RALLY behind it, which would keep shareholders happy.
If the partnership involved Google monetizing yahoo properties it would allow Y! to redirect all the ineffective people working on search and the ad system into areas yahoo! should focus on, media.
How about Amazon in the mix? A Yahoo-Amazon merger would make a lot of sense on many fronts.
Looks like Microsoft’s investment in Facebook was just a gimmick to divert everyones attention while Microsoft was planning this all along. Mark Zuckerberg actually believes he is a genius by making a duplicate of myspace with white background and lesser ads. He just happened to be lucky between their war. Anyway bow down to Microsoft .
If Y allows GOOG to do the monetization, they’ll end up making the same mistake that they made early on in the game when the outsourced the search technology to GOOG. the mistake they haven’t recovered from yet and are still struggling with.
What will be the impact of outsourcing monetization to GOOG? Two impacts- a doomed Panama along with a strong adsense/adwords combination ensuring a virtual grip of GOOG on most of web’s publishers.
Yahoo would be committing a huge strategic blunder if they were to join forces with GOOG. It would be more like ‘fool me twice….’
Interesting idea, Mike, on the Rosensweig – Facebook thread. I know Rosensweig is jonesing to get back into the game, and he loves Facebook. However, there is not a snowball’s chance in hell that Zuckerburg would do such a deal. He actually believes that his company is worth more than Yahoo, so there would be no logical discussions with Zuckerburg about valuation, hence no chance of a deal!
Anyone from Facebook or close to Rosensweig disagree with my logic?
The superbowl did not meet an inevitable end…will Yahoo?
Hey, I like the idea of getting our friend Rosensweig back. He already managed to fuck Y! Europe in the a with this great Kelkoo deal (what was it like? 640 m euros?) that made some of his pals in frog-eater country rich (guess he got his share), leaving Y! Europe suffering from that until today. We got rid of most of the new french euro top managers now but still have fun with quite some “decisions” they made. So Dan, please kepp your fingers off Y!, you’ve tortured us enough.
Hey 35 moron, why don’t you look up what the top sports, finance, celebrity news, mail, and single page on the web are? I’ll give ya hint….Y! sports, Y! Finance, OMG, Y! Mail, and the Yahoo! Homepage. Oh, and have you ever heard of Flickr? Not a bad site either. Yahoo! 2 Go mobile? #1 as well. People who comment on stories should at least have some working knowledge of what the hell they’re talking about.
[Arrington:] … a slim chance for a certain White Night to appear and save the day.
Mike: were you preparing for the White Party (SF, Miami, …) or is this a hint about cocaine-addicted VCs?
I love your spell checker
a lot of post with good ideas and perspectives (then there are the ones not worth commenting on). while the takeover makes sense to MS, to get into this online game, what do they really want out of this deal – the search assets – the advertisers and inventory (hope it’s not the technology cuz panama is an annal program to manage (a reflection on management)) the various leading trafficked sites with a view to doing a better job leveraging higher ad yields from them.
the combined co.s become a player to rival G given its assets – traffic, money, technology(!!!!) but realize I don’t say innovation. clearly what both co.s can’t do is innovate and that will remain the case. they are where they are because they are the old guard (think auto industry (where their sprint is no faster than their sleep!). the industry is changing way too fast for their lumbering management structure have any idea what is going on out there! and reacting to market forces is really not a strategy in todays online business – lead or get out of the way! think, Zune, Y360, to mention the obvious….
so Balmer, i don’t know what you are thinking by offering $44b – pull back, give them half that, strip it (management to go first), keep trafficked sites and buy fb with the change – then keep buying new startups with traction or/and disruptive technologies (if your management is not too busy protecting their lame ducks) then you’ll may remain in the game.
One piece people are overlooking is Yahoo’s relationships with ISPs.
Comcast and ATT collectively(both of which Yahoo has strong ties, ATT rev share on Subscribers, Yahoo represents all of Comcast’s Online Ad Inventory) own a 32% share of Internet Subscribers. Yahoo could setup data deals with the ISP to increase the value of MSN/Yahoo’s inventory.