Microsoft: Ok, So Now What?—And Is MSFT-YHOO Really Over?
By Joseph Weisenthal - Mon 05 May 2008 11:20 AM PST
So much for a sigh-of-relief rally. Microsoft (NSDQ: MSFT) shares are up an anemic $.20 today, less than one percent actually trading down a penny now. And check out Yahoo (NSDQ: YHOO), now trading near $24.50 per share (down just 14.5 percent) after opening sub-$23. Based on these movements, it’s almost as if the market doesn’t believe it’s over. In a note, Citi’s software analyst Brent Thill puts a 15 percent likelihood on what he calls the “7 percent solution”—the idea that at the midpoint of their demands, Microsoft and Yahoo were only 7 percent apart.
It’s just as possible that the companies are behaving as they are for totally different reasons. Yahoo could be up on the optimism for a Google (NSDQ: GOOG) ad deal, or some other arrangement. And Microsoft’s muted rise: fears that some other big bid is coming. As Rafat noted Saturday, Microsoft has $50 billion burning a hole in its pocket, so it could buy any number of companies: AOL (NYSE: TWX), Facebook, ‘New IAC’ (NSDQ: IACI), whoever. Problem is, these would all be second choices, having failed to grab the the prize it had its eye on. So Ballmer’s choices: buy a second-best asset, buy a lot of risky startups at nosebleed valuations, or leave $50 million in the bank earning nothing at today’s rates, while remaining substantially dependent on a core business that looks shakier today than it did last quarter. No wonder investors aren’t bidding up Microsoft harder.
Staci adds: I’ll toss in another option—use some of that money for some smaller acquisitions, talent raids and a huge development push. At the same time, focus on undoing the kludge of MSN, MSN Live, Windows Live and the rest, and create a coherent whole with a message that makes sense. It’s time to stop throwing spaghetti at the wall.
As for this all being over but the shouting, told ya that was wishful thinking.
Posted in: Companies, Microsoft, Yahoo, VC+M&A, Mergers & Acquisitions
