First, the Microsoft offer: Microsoft is offering $44.6 billion in cash and stock for Yahoo!. The dollar amount is eight times Yahoo!'s sales and a stunning 67 times 2008 consensus earnings of 46 cents per share. Now, you can see why Microsoft's stock was down 6.6% on Friday after the news was announced. This would be a dilutive transaction for Microsoft and Wall Street has a way of penalizing companies for dilutive deals. But for Microsoft, long term, the transaction could be quite valuable and productive and set it up as a clear number two to giant Google (NASDAQ: GOOG).
Yahoo! is kidding itself if the board of directors thinks it could choose to remain independent. The shareholders have spoken, and loudly, with Yahoo! stock up over $9 on Friday. Taking away a quick $9 followed by a flat year in revenues and earnings as Yahoo! had itself forecast, is not going to be acceptable. So, let's forget that possible option.
Other potential buyers could be General Electric (NYSE: GE) , Viacom (NYSE: VIA), or Comcast (NASDAQ: CMCSA), but I don't think they hold any real promise. Viacom's market capitalization is $26 billion, Comcast's is $57 billion, and of course, GE is a behemoth at $363 billion. Any counter offer for Yahoo! by any of these three would be highly dilutive, even more so than Microsoft. I doubt Comcast or Viacom would spend more than their own market cap to buy a struggling Yahoo!. General Electric would treat Yahoo! as a straight subsidiary with very few synergies.
Yahoo! is lucky to have this generous offer in hand. As I wrote on Friday, the cultural differences will be the most challenging with a Microsoft marriage. Other potential suitors may be lying in the weeds, but at $44.6 billion for a struggling player, that seems somewhat impractical.
Yahoo!, you're mulling over? Ya gotta be kidding.
Georges Yared writes about great growth stocks today in GameOn Investing.
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Reader Comments (Page 1 of 1)
2-04-2008 @ 4:15PM
Leslie said...
Just like in real estate, "your first offer, is always your best offer...."