If we told you that a $3.00-plus drop in the price of oil wouldn't cause a major stock rally, it might only not be a surprise the bears who believe we are headed lower no matter what. Today was one where the markets spent much time in negative territory and then recovering towards the end of the day before making one last dive. If you think it was a quiet day, we had nearly a 300-point difference between today's high in the morning and the lows before today's recovery. These are today's unofficial closing levels:
The Walt Disney Company (NYSE: DIS) saw a severe downgrade after Lehman cut it to Underweight on its premium to peers and weakness tied to Theme Park exposure. Shares were down over 2% at $30.22 in today's final minutes.
Many Wall Street analysts thought that when Microsoft (NASDAQ: MSFT) lost its bid for Yahoo! (NASDAQ: YHOO) that it would take the $45 billion it was going to spend and buy other online companies.
Think again. Microsoft's management says it is not so. According to the FT, "Steve Ballmer, chief executive, scotched talk that Microsoft would turn to a `plan B' of other acquisitions to boost its online presence." Ballmer feels that buying more internet companies will not improve its share of the search market. He is not simply after more pageviews.
The news is probably disappointing to several large online companies. AOL, Facebook, Monster (NASDAQ: MNST), and Digg might all have been part of a Microsoft plan to improve the size of its presence on the web.
The Microsoft comments send another message. Search is important. Display advertising is not. Search is an efficient way to make money. Display advertising's best growth years are behind it.
If Ballmer is right, the online world is about to go through a major upheaval.
Douglas A. McIntyre is an editor at 247wallst.com.
In a bit of investigative reporting that no one will care about, The Wall Street Journal has discovered that a series of disputes between Steve Ballmer and Bill Gates eight years ago caused a changing of the guard at the company. The paper writes that "The conflict between the two men paralyzed business-strategy decisions that the company still wrestles with today. Board members stepped in to try to mediate a truce."
The piece in the Journal is a nice human interest story, but that it would be the top story at the paper is a bit odd. That is until the reader considers that the cult of personality is still alive and well in American business. Chiefs like Lee Iaccoca and Jack Welch have written best-selling books. Apple (NASDAQ: AAPL) customers and shareholders worship Steve Jobs.
All of that, to a large extent, takes the eye off of the ball. The people who run large companies, even those that are fabulously successful, are only doing the jobs that the investing public expects of them. Even if they are founders. Gates and Jobs decided to take their companies public. After that, the only reasonable question is whether they made shareholders money.
In many ways, the transition from Gates to Ballmer has been a failure. Eight years ago, Microsoft (NASDAQ: MSFT) traded at $53. Now its stands at under $28. Gates may have turned the CEO job over to Ballmer, but neither has done the stockholders any favors.
Douglas A. McIntyre is an editor at 247wallst.com.
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.
When you look at the ROE,Microsoft (NASDAQ: MSFT) -- with its 45.28% -- has a four times greater return than that of Yahoo Inc. (NASDAQ: YHOO)'s 10.96%. Yahoo looks like another drag.
According to people familiar with the matter, Robert Verrone, one of the most zealous commercial real-estate lenders during the industry's boom, will leave Wachovia Corporation (NYSE: WB) within the next week, the Wall Street Journal reported.
WEB SITES:
Bloomberg reported that the Department of Justice is probing whether UBS AG (NYSE: UBS) helped clients evade American taxes. In an e-mailed statement, the firm said one senior bank employee was "briefly detained" by authorities.
Bloomberg also reported that Vallejo, California's city council voted to go into bankruptcy. Officials said that after talks with labor unions failed to win salary concessions from police and fire fighters, the city does not have enough money to pay its bills.
According to a rumor, TechCrunch reported that the Yahoo Inc (NASDAQ: YHOO) board of directors yesterday authorized Yahoo chairman Roy Bostock, rather than CEO Jerry Yang, to call Microsoft Corporation (NASDAQ: MSFT) CEO Steve Ballmer about re-starting negotiations.
The dust is settling after the withdrawn purchase offer of Yahoo Inc. (NASDAQ: YHOO) by Microsoft Corporation (NASDAQ: MSFT). During that fascinating process, speculation ran high as to why Steve Ballmer chose the strategy that he did. People were asking what the probable outcomes could be and what would possibly be created by the acquisition. What I have found to be lacking in the realm of the public keyboard is a synopsis of what exactly Steve Ballmer has accomplished through this seemingly fruitless process.
I was convinced that Microsoft (NASDAQ: MSFT) would go hostile on Yahoo! (NASDAQ: YHOO). Microsoft is known as a tough player, right? And Yahoo seems to be a good strategic fit.
But of course, Microsoft's CEO, Steve Ballmer, has thrown in the towel on the $31 buyout offer. Apparently, he lobbed $33 per share – but the folks at Yahoo wanted $4 extra.
I can certainly understand why Ballmer doesn't want to overpay. After all, many M&A studies show that this is often deadly for dealmaking.
At the same time, Microsoft had the option of a proxy fight and a direct offer to Yahoo shareholders. However, Ballmer thought such things would be too distracting. But doesn't Microsoft have legions of attorneys and investment bankers?
Microsoft (NASDAQ: MSFT) shareholders should breathe a sigh of relief for not overpaying for an internet search company, Yahoo (NASDAQ: YHOO) where CEO Jerry Yang let his ego get in the way of handsome profits. Yang rejected the $47.5 billion offer that Microsoft put on the table. Why? Because he thought the company is worth more than $50 billion. As reported by the AP: "Clearly there's frustration," said Darren Chervitz, co-manager of the Jacob Internet Fund, which owns Yahoo stock. "I am not even sure if Yahoo cares about its shareholders because they didn't show much regard for shareholders' best interests in this process."
Yang actually thinks that a more sophisticated advertising platform is the secret sauce needed to produce a spike in revenue growth. Keep in mind that revenue grew by only 12% last year, and there is no indication that that number is going to be much higher in '08. Yang thinks that he will be able to grow revenue's by 25 percent in 2009 and 2010. Uh Huh!
I think that today's selloff in Yahoo stock will be an indication of what the public thinks of Yang's plan.
Could it be that in the long run he will be proved correct? I doubt it but only time will tell.
Aaron Katsman is the lead Portfolio Manager and Managing Director of America Israel Investment Associates, LLC. and Senior Editor of IsraelNewsletter.com. DISCLOSURE: Writer's fund has no position in any stock mentioned, as of 5/5/08.
That number may not be enough. Currently, Yahoo is valued at $29.06 a share but Microsoft is considering an offer in the $32 or $33 range. However, that's short of the $35 to $37 range that Yahoo shareholders want for their holdings.
Yahoo continues to hold out hope for remaining independent, including a combination with the BloggingStocks parent, AOL, a unit of Time Warner (NYSE: TWX) and a search advertising partnership with Google (NASDAQ: GOOG). And so the drama continues.
Discretion is the better part of valor -- that's what I was always taught. Perhaps the time for a strategic withdrawal has come in the battle of Microsoft Corp. (NASDAQ: MSFT) vs Yahoo Inc. (NASDAQ: YHOO). Somehow, though, I can't imagine it will take that turn, as I read the analysts, strategists and pundits. How could it have become so adversarial? Surely something ugly may be at hand.
Did Steve Ballmer envision this type of scenario when launching his original bid for Yahoo? Did he ever imagine the attempted synergy would become a battle of wills as much as money? To what degree does pride factor into this pending recipe for disaster? I dare say that is what it has all come down to now. Pride goes before a fall, they say.
Does Steve Ballmer have the grace within him to fold his tents and quietly withdraw? Or shall his siege works be lain against the walls of Yahoo in an attempt to forcibly take it? Already he has warned that he will appeal to the sensibilities of Yahoo's investor rank and file. It's a tactic which has been used in many a war. However, attempting to romance the populace away from their leaders seldom, if ever, has worked. In the meantime, Microsoft's own shares are on the decline, diluting the strength of its acceptable offer.
I submit to you that at this time Microsoft should disengage from the situation entirely. Giving Yahoo some time to fully digest the reality of what it is facing might be a worthwhile strategy. To force the matter any further right now may only lead to the degradation of the reputations of both companies. That is something that no one desires.
The powerful silence emanating from an adversary which has quietly withdrawn places nothing but unanswerable questions on the horizon.
Gary Sattler is a freelance blogger. He does not knowingly have interest in the companies mentioned in this blog post.
Shares of Microsoft (NASDAQ: MSFT) fell in after-hours trading after the world's largest software maker failed to wow investors.
Net income at the Redmond, Wash., company fell to $4.39 billion, or 47 cents a share, on flat revenue of $14.5 billion. Analysts had expected profit of 44 cents on revenue of $14.5 billion. Revenue at Microsoft's Business Division, Client and Server and Tools businesses, the company's largest, fell during the quarter. The others, including the Entertainment and Devices unit, rose.
Pacific Crest analyst Brendan Barnicle told Bloomberg News that "people were expecting more of a blowout. It's a decent quarter. It's not a great quarter by any means, and people were expecting a great quarter.''
Bloomberg News reports that Microsoft Corp. (NASDAQ: MSFT) CEO Steve Ballmer said he did not think it made sense for it to buy Google Inc. (NASDAQ: GOOG). Ballmer cited the high price as well as regulatory and antitrust concerns. Meanwhile, Ballmer said he had no plans to raise his $31 a share cash and stock bid for Yahoo (NASDAQ: YHOO).
But if Ballmer is really interested in advertising, he would get a much more powerful player in Google. After all, Yahoo, which has four more days to consider Microsoft's offer, saw its sales climb a modest 14% last quarter, while Google sales spiked 46%. And the stock market gave Yahoo a Bronx cheer -- slicing 2% off its value this morning on yesterday's earnings announcement -- compared to a 20% surge in Google's market capitalization on its announcement.
Could Microsoft afford to buy Google? Yes. Google's current market capitalization of $174 billion is $111 billion less than Microsoft's $285 billion. If Microsoft offered to swap stock with Google at a 20% premium -- a $209 billion deal -- Microsoft would end up paying 73% of its shares to own Google. And in so doing, it would create a company with $68 billion in revenues and $18.2 billion in profit.
Jerry Yang may have just figured out a way to not hose Yahoo! (NASDAQ: YHOO) shareholders. The Wall Street Journalis reporting that Yahoo! and Time Warner Inc.'s (NYSE: TWX) AOL may be close to a tie-up to combine their Internet operations. According to the report, Time Warner would make a large cash investment into Yahoo! and then Yahoo! would repurchase billions of dollars worth of shares in the mid-$30's. Just keep in mind that as of now, this all only an unverified WSJ story; nothing has been released by the companies.
This would thwart Microsoft Corp. (NASDAQ: MSFT) in a deal valuation, or at least that would be the intent. Interestingly enough, there were headlines today tying Yahoo! into running some test search-ads via Google (NASDAQ: GOOG). As long as we're talking about your cousin's sister's brother, Google also owns a 5% chuck of AOL via a prior $1 billion investment. In order to monetize the deal, AOL would have to have a liquidity event of some sort, although by now the time may have passed.
There are no assurances that shareholders would go along with an AOL/Yahoo! combination, nor are there assurances that this would net more money to Yahoo! shareholders in the end. Time Warner shareholders might even potentially be an issue. Until there are more facts out other than the Journal's un-named sources, it's just all hearsay anyway.
Frankly, it's a wonder that Bill Gates hasn't tried to get involved in this deal with his own money. He could always say he's too young to go do charity.
According to the Wall Street Journal, talks between the two companies have "heated up recently." Maybe the discussions have obtained a heightened sense of urgency now that Microsoft CEO Steve Ballmer has threatened to make his company's unsolicited bid for Yahoo hostile. Ballmer has given Yahoo until April 26 to respond to the offer. No doubt that deadline will not be the last line in the sand to be drawn.
I still give Microsoft the edge in this contest. The software maker wants Yahoo in the worst way, offering $44.6 billion, or $31 per share, for the beleaguered Internet portal. Time Warner also is under pressure from shareholders to turn around AOL. But unlike Microsoft, it doesn't feel the force of Google Inc. (NASDAQ: GOOG) breathing down its neck. I would be surprised if Time Warner would match Microsoft's offer for Yahoo.
I also sincerely doubt that Time Warner shareholders would jump for joy if this deal were to happen. While merging Yahoo and Time Warner's AOL makes sense on some level, it would do little to boost the media conglomerate's share price unless it was accompanied by a spin-off. The headaches such a deal would create would be enormous. Merging MSN and Yahoo would be no picnic either.
Even in a Microsoft/Yahoo deal, MSN would likely cease to exist. Advertisers would never tolerate the duplication of content if Microsoft were to buy Yahoo. Shareholders, who argue that Microsoft is wasting its time chasing Google, wouldn't tolerate it either. Massive layoffs at MSN would result to keep shareholders off Microsoft's back.
Ballmer needs to remember the ancient proverb of being careful what he wishes for because he might get it. Freelance writer Jonathan Berr edits the blog Ketchup and Eggs.
For years Microsoft (NASDAQ: MSFT) has taken the approach that it is best to fill senior management jobs from within the company. While this may have worked in areas like running the operations for Windows OS, server software, and Office, it has not worked in the device and internet businesses. Microsoft's software divisions can be run by engineers, but other areas of the company probably cannot.
To fix this, CEO Steve Ballmer is turning outside the company for management.
Brian McAndrews, who now runs Microsoft's online ad business, has insisted that certain engineering groups report to him, according to The Wall Street Journal. The company also brought in its chief operating officer, Kevin Turner, from Wal-Mart (NYSE: WMT) and Don Mattrick, who runs video games, from Electronic Arts (NASDAQ: ERTS).
Why the change of heart? Microsoft has done poorly in several of its divisions, and its online and devices operations lose hundreds of million of dollars each year. While the Xbox has moved ahead of Sony's (NYSE: SNE) PS3, it still trails the Nintendo Wii. Microsoft's MSN and Live online operations have failed to gain ground on Yahoo! (NASDAQ: YHOO) and Google (NASDAQ: GOOG).
It could be argued that Microsoft should never have gotten into businesses so far afield from building PC and server software. Investors probably would have been better off if the company had not been saddled with losses from these new divisions.
But, if Ballmer insists on going down the road of diversification, he might as well do it right.
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