Recently I posted a Serious Money metrics story that included Microsoft Corp. (NASDAQ: MSFT) and Yahoo Inc. (NASDAQ: YHOO) comparisons along with six other stocks. Until now I have not felt very strongly about the merits of Microsoft's offer to acquire Yahoo! and merge assets and features.
I was leaning toward the price is too high camp, but now, after Microsoft has withdrawn the offer and I have looked at the current state of affairs of both companies, I think it did the right thing and may have avoided a nightmare.
To bring Yahoo! into the fold, Microsoft would have had to find enough cost savings by eliminating overlapping departments or it would have had to hope it could double Yahoo's earnings. If not, the acquisition would unduly weigh down the mother ship, because Microsoft's P/E Ratio of 17.08 is half that of Yahoo!'s 34.25.
The ROA of Microsoft (NASDAQ: MSFT) is 19.78%, that when compared to that of Yahoo Inc. (NASDAQ: YHOO)'s 3.44%, just exemplifies again that Yahoo management has had great trouble building shareholder value even as the product continues to bring value to Internet users.
I have even wondered if "my pal Warren" of Berkshire Hathaway (NYSE: BRK.A) has had any influence on Microsoft's decision to abandon the Yahoo! acquisition. He has become very good friends with Bill Gates over the last five years, and Gates sits on the Berkshire Board.
In the mean time, shares of Yahoo's are not doing as bad as one might have expected, only down about 10% since Microsoft backed away, and they were actually up yesterday, closing at $26.56 on speculation of a possible proxy fight Icahn might launch.
Sheldon Liber is the CEO of a small private investment company and the principal for design and research at an architecture & planning firm. He writes the columns Chasing Value and Serious Money. Disclosure: I own shares of BRK.B.
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