Microsoft, this morning, announced it has made an offer to acquire Yahoo! for $45 billion. Great news if you’re Microsoft, but horrible news if you’re Yahoo! (or one of its customers, partners, or shareholders).
I’m sure there’s the temptation, especially by Yahoo! shareholders, to capitulate to Microsoft due to the beautiful run-up this morning of YHOO’s share price. They’ve been battered lately on Wall Street by competitive concerns (think GOOG) and have been held down by Yahoo!’s general lack of momentum (at least their lack of upward momentum).
But Microsoft’s own success rate outside of operating systems, productivity software, and gaming consoles would probably be leaving any committed Yahoo! shareholder a bit worried. MSN, Microsoft’s general branding for its “Internet strategy,” has thrashed from one personality to another. Is it an Internet service provider? Is it a portal? Is it a search engine? An online community? The answer: all of the above, poorly, at one point or another.
Microsoft also has a terrible history of decimating the “Internet strategy” companies it acquires. Think WebTV in early 1997. Think Hotmail in late 1997. Think Jump in 1999. Think… Well, you get the point.
Hotmail is now primarily for spammers, pornographers, and a few people who don’t know any better. WebTV (once WebTV by MSN, now MSN TV) barely exists at this point (another one of those Microsoft-personality-thrashing disorders).
Yahoo! might benefit for a while, if Microsoft uses its monopoly power to make it the default home page for Internet Explorer. But Microsoft isn’t even committing itself to maintaining the Yahoo! brand. If Hotmail is any indication, over the next decade Yahoo! will first be known as Yahoo! by MSN, then MSN (formerly known as Yahoo!), neither of which will be well received, and at some point Microsoft will restore the (by then, badly damaged) Yahoo! brand.
You can see it’s hard to imagine Yahoo! customers or partners benefitting from a Microsoft acquisition. I can’t imagine the Yahoo! employee culture retaining any charisma in the long run under Redmond rule. And aside from this morning’s shareholder (desperation-fueled) enthusiasm, the $12 premium can best be defined as plundering. The $19 YHOO has recently been trading at isn’t really an accurate valuation of Yahoo!, more of just an indication of the lack of Wall Street’s confidence in the company’s strategy.
The stock is now trading at $28, a few dollars shy of Microsoft’s $31 offer. My guess is $28 is a much closer valuation of Yahoo!’s actual value. My guess is the gap between YHOO and Microsoft’s offer is a good indication of Wall Street’s concern with the deal’s consummation prospects. And, I hope, some concern with the lack of any reasonable reciprocal rationale, on Yahoo!’s part, for Microsoft’s unsolicited pillaging offer.