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donsutherland1 · 05-04-08, 10:06 PM

In the wake of Microsoft's terminating its bid to acquire Yahoo, Monday's trading in the respective companies' shares should be quite intense. Microsoft could close above $30 per share (vs. $29.24 at Friday's close)--probably in the $31-$34 range (where its shares had generally been trading in the 30 days leading up to to its initial bid for Yahoo)--as that company's shareholders hail a decision that ended a proposed acquisition that might well have had the potential of eroding shareholder wealth. Yahoo's shares will likely sink and a close in the $22.50 to $25.50 range (vs. $28.67 at Friday's close), somewhat above where its shares had generally been trading in the 30 days leading up to to Microsoft's initial bid for Yahoo. There is even a chance that the company's shares could briefly reach or drop below $20 per share in intraday trading before the price firms up, as markets can go to excess in their reactions.

Farther down the road, it will be interesting to see what moves each company makes in its bid to strengthen its online advertising business via what would essentially amount to the acquisition of another company's customer portfolio. AOL (decent customer base) is one possible target. Myspace.com (attractive, younger customer base) is another. My guess is that Microsoft recognizes that internal growth alone will not put it into a relatively stronger position in the near- or medium-term with respect to Google than its current standing. Hence, Microsoft will continue to look to make a strategic acquisition to bolster its capacity to attract online advertising.

Should Microsoft and Yahoo seek to engage in a bidding war against one another for, let's say AOL or Myspace.com, Microsoft would have the far stronger hand in terms of liquid assets/cashflow. Yahoo would likely need to undertake a leveraged bid and, given the ongoing credit squeeze, its ability to raise financing for such a deal would not be assured. In the most recent quarterly balance sheet, Microsoft's cash & cash equivalents + short-term investments amounted to $26.3 billion; Yahoo's came to about $2.0 billion. Moreover, during the most quarter, Microsoft's cash flow from operations amounted to $7.1 billion vs. Yahoo's $0.6 billion.

Yahoo could seek to deepen its recent collaboration in advertising with Google and/or explore the possibility of stock buybacks so as to mitigate pressures on its shares. Given Microsoft's overwhelming edge in liquid assets, greater collaboration with Google appears to be a more likely option for Yahoo than an acquisition, particularly one in which Microsoft might be a competing bidder.

Finally, it should again be noted that sometimes deals that have been left for dead have revived again. It will be interesting to see if this proposed acquisition comes back to life at some point. A sharp fall in Yahoo's stock along with a proliferation of shareholder lawsuits could well push Yahoo's Board of Directors to attempt to reopen negotiations with Microsoft. If so, Microsoft's leverage will be much greater than it was in the initial discussions, so Microsoft might not have to bid much more than its initial offer. Given the somewhat poisoned relationship between the two companies and concern of a talent flight from Yahoo, I do not believe a revival of the Microsoft bid is likely in the near-term.

05-04-08, 10:06 PM	#9 (permalink)
donsutherland1 Moderator Mod team member Join Date: Oct 2007 Last Online: Yesterday 10:31 PM Location: New York Posts: 2,276 Thanks: 721 Thanked 1,359 Times in 789 Posts Lean: Centrist Gender: Awards:	Re: Microsoft Withdraws Bid for Yahoo In the wake of Microsoft's terminating its bid to acquire Yahoo, Monday's trading in the respective companies' shares should be quite intense. Microsoft could close above $30 per share (vs. $29.24 at Friday's close)--probably in the $31-$34 range (where its shares had generally been trading in the 30 days leading up to to its initial bid for Yahoo)--as that company's shareholders hail a decision that ended a proposed acquisition that might well have had the potential of eroding shareholder wealth. Yahoo's shares will likely sink and a close in the $22.50 to $25.50 range (vs. $28.67 at Friday's close), somewhat above where its shares had generally been trading in the 30 days leading up to to Microsoft's initial bid for Yahoo. There is even a chance that the company's shares could briefly reach or drop below $20 per share in intraday trading before the price firms up, as markets can go to excess in their reactions. Farther down the road, it will be interesting to see what moves each company makes in its bid to strengthen its online advertising business via what would essentially amount to the acquisition of another company's customer portfolio. AOL (decent customer base) is one possible target. Myspace.com (attractive, younger customer base) is another. My guess is that Microsoft recognizes that internal growth alone will not put it into a relatively stronger position in the near- or medium-term with respect to Google than its current standing. Hence, Microsoft will continue to look to make a strategic acquisition to bolster its capacity to attract online advertising. Should Microsoft and Yahoo seek to engage in a bidding war against one another for, let's say AOL or Myspace.com, Microsoft would have the far stronger hand in terms of liquid assets/cashflow. Yahoo would likely need to undertake a leveraged bid and, given the ongoing credit squeeze, its ability to raise financing for such a deal would not be assured. In the most recent quarterly balance sheet, Microsoft's cash & cash equivalents + short-term investments amounted to $26.3 billion; Yahoo's came to about $2.0 billion. Moreover, during the most quarter, Microsoft's cash flow from operations amounted to $7.1 billion vs. Yahoo's $0.6 billion. Yahoo could seek to deepen its recent collaboration in advertising with Google and/or explore the possibility of stock buybacks so as to mitigate pressures on its shares. Given Microsoft's overwhelming edge in liquid assets, greater collaboration with Google appears to be a more likely option for Yahoo than an acquisition, particularly one in which Microsoft might be a competing bidder. Finally, it should again be noted that sometimes deals that have been left for dead have revived again. It will be interesting to see if this proposed acquisition comes back to life at some point. A sharp fall in Yahoo's stock along with a proliferation of shareholder lawsuits could well push Yahoo's Board of Directors to attempt to reopen negotiations with Microsoft. If so, Microsoft's leverage will be much greater than it was in the initial discussions, so Microsoft might not have to bid much more than its initial offer. Given the somewhat poisoned relationship between the two companies and concern of a talent flight from Yahoo, I do not believe a revival of the Microsoft bid is likely in the near-term. Last edited by donsutherland1 : 05-04-08 at 10:13 PM.