This is the lazy man's way of blogging. I'm cross-posting I comment I made on the MSFT bid for Yahoo! over the HELLIONS. I guess this Obama/Clinton thing really is racial and if so I guess I have to nail my colors to the White mast. To that end, I'm going to switch over to a subject I've paid only a little attention to but nevertheless on which fits this new "White Guy" persona of mine very well: finance.
MSFT/Yahoo! may turn out to be one of the great cases in the history of finance. The key questions are:
1) Did Yahoo! management and directors learn anything from its experience of being undressed by Mark Cuban? Hmm...Microsoft is bidding a 62% premium to market?!?!
Aren't you in their position LEAPING at this deal? I am.
2) By getting scared of Google and reacting with this move, is Microsoft setting itself out on a path that could lead to the ITT-Harold Geneen cul-de-sac? And at a 62% premium no less? American equities are not my specialty, but this seems to be a pretty easy one to weigh up. Microsoft's management must PROVE to its directors and shareholders that the acquistion of Yahoo! with a premium that would be a gift in a bull market, let alone today's market, would create MORE shareholder value than could be created by the collective acquisition by each individual and institutional SOFTEE shareholder of $45bn/1.62 or $28bn worth of Yahoo! stock in the market itself. I don't know the answer, because I don't know ni la verga about tech. Yahoo! at $45bn combined with MSFT's other tech holdings MIGHT well cover a rather large point spread. I does strike me as a large hurdle to clear, though.
One doesn't need to assume a theoretical scenario like that nor be conversant in the work of Markowitz, Lintner, Traynor, Sharpe, Jensen, Fama, Modigliani nor Miller to get the point. Let's say you own ONE share of MSFT that's worth $30.45. Furthermore, let's accept the MSFT management argument that YHOO is undervalued. Would you rather MFST acquire one share of YHOO for $45.36 hoping for "synergy" and packing the YHOO into your MFST or would you rather buy the YHOO yourself for $28, get the same shot at capturing the missing value PLUS take a free-roll at the risk arbitrage (there's a misnomer if I've ever heard one!)?
I happen to think that because of its size MSFT is displaying a lot of dysfuncionality espcially given that MFST and MSN have been in competition in the web business. Moreover, I think that MSFT is about the operating system and the Office Suite. Web applications are fine but if the "open-source" movement gets going the nextg Google will be some hobbyists improved operating system and improved version of Office.
If "Pocket Aces" killed more Jew than Hitler did, then certainly 'synergy' has killed more goyim than Stalin did.
And you'll know MSFT fucked up if 5 years down the road after having acquired Yahoo! they bid for something like Phelps-Dodge or Beatrice!
Kelso's Nuts love you
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6 comments:
MSFT has lost money on everything it has done outside its monopoly. Sometimes I think it does so willingly to confuse the regulators about what it really is or how powerful its monopoly power is. So maybe not so stupid with Yahoo. Also at least they were patient -- waited for YHOO to crash 80% or so before moving hard.
Last night I actually had pocket aces at Ted's house, played 'em hard, won, and made the same Hitler joke to Simon, who said it might be "inappropriate". Boy the Holocaust really has legs.
Yeah, Rich and I were wondering why not wait for McCain to get elected and Google to get a 90% mkt share and then have McCain's DOJ bring an anti-trust case against Google. You know Boies and Klein won't be brought in as "QCs"!
Fucking Simon said that? For real? At Ted's game? Were Master and Rick there? Or David The Bway A-rab? He'd say the rudest shit of all during the NLHE games, about "ass pussy" and stuff like that. Kee-righst! When did it become so PC? My impression is that Ted prided himself at being at the avant-garde of humor and certainly not so prissy.
kelso,
The reality of boner's claim of Microsoft losing money on every venture outside its core is doubtful.
Microsoft once believed the Internet was an unimportant development relative to its business. An awakening followed and the Internet Explorer was born.
Meanwhile, Yahoo probably pulled in revenue of $7 billion in 2007 -- versus $51 billion at MSFT. But its operating margin is far skinnier than Micro's, which runs about 36%. Yahoo's is less than half that figure.
If Gates/Ballmer can run Yahoo as efficiently as MSFT, it looks like this deal can work, especially if you believe Ballmer, who says Internet ad revenue will increase from the current $40 billion to $80 billion by 2010.
But that promises nothing to MSFT stockholders who've seen very little reward for the last few years. No meaningful stock improvements despite climbing revenue and healthy margins.
In that sense this deal looks like a circling of wagons. Google is the nightmare Indian tribe every tech company dreads and the best MSFT can do is to use Yahoo for a defensive shield.
2x revenues in stagflating economy? OH, right, SYNERGY!
If I were holding yahoo I'd be praying right now.
kelso,
I doubt the "synergy" issue means much in the bigger picture. Like ITT and Geneen. The changes will occur no matter what strategies drive the leaders.
I'm sure there are kids at MIT or CalTech today who are going to turn MSFT and/or GOOG upside down -- within five years.
Any way you cut it, there's no obvious benefits for stockholders of MSFT.
No_slappz:
This has to be a record for you on a lefty blog, no? You and the proprietor have agreed now on a major issue two weeks running and I haven't forgotten your extremely eloquent (as opposed to Obama's "gradiloquece") response to the regrets/non-regrets meme tag.
So long as you don't cut and paste portions of my posts or comments you are a welcome addition to Kelso's Nuts.
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