Welcome to Microsoft
by John Paczkowski
Posted on February 8, 2008 at 12:28 AM PT
A popular misconception has it that Yahoo is an acronym for “You Always Have Other Options.” (According to Yahoo’s corporate history, it’s an acronym for “Yet Another Hierarchical Officious Oracle.”)
Well, not this time.
Because it appears to be the beginning of the endgame for Yahoo. Word on the street has it that the company’s board of directors will meet this afternoon to decide whether to capitulate to Microsoft. “The board, we’ve heard, is basically being told by outside advisers to take the Microsoft deal,” TechCrunch reports. “But we’ve also heard that a contingent of senior executives at Yahoo, who are willing to do literally anything to thwart a Microsoft takeover, are pushing for the Google deal and will present their case at the meeting.”
Not that it will do much good. Though a Yahoo/Google search-outsourcing deal might deliver 25%-plus accretion to Yahoo’s cash flow, spurning Microsoft’s $44.6 billion advance would almost certainly trigger a shareholder revolt. Which means it’s more than likely that Yahoo will accept the current bid or another that’s been raised a bit, as Citigroup analyst Mark Mahaney has already noted in his widely cited “Five Scenarios” analysis:
- Scenario No. 1: Yahoo hits the $31 bid. 20% probability.
- Scenario No. 2: Yahoo rejects the bid; Microsoft ups its offer; the deal happens. 40% chance.
- Scenario No. 3: Another bidder emerges and wins. 5% chance. (“We believe that the $45 billion price tag and the strategic value of Yahoo to Microsoft make the likelihood of a successful competing bidder very low,” Mahaney writes.)
- Scenario No. 4: Deal blocked by regulators. 10% chance. (Mahaney notes that the combined companies are at most 30% of total U.S. online advertising, and less than that in Europe.)
- Scenario No. 5: Yahoo/Google search-outsourcing deal. 25% chance. (“We believe the probability of this is greater than financial markets realize,” he writes. “If Yahoo’s board and management want to remain independent, shareholders will insist on a major value-creating strategy to balance the Microsoft bid. This may be the only viable strategy, as it could deliver 25%-plus accretion to Yahoo’s cash flow.”)
Looks like it’s scenario No. 2, then. Dun-dun… Dun-dun… Dun-dun Dun-dun Dun-dun DUN-DUN DUN-DUN!
