It wasn't all that long ago that Microsoft Corporation (NASDAQ: MSFT) eyed Yahoo, Inc. (NYSE: YHOO) with an eye towards acquisition. Yahoo fought it off, spending a great deal of money and lawyer's time, and filling any tech-oriented new outlets with headlines for quite a while.
Now the smell of acquisition is once more in the air thanks to Microsoft honcho Steve Ballmer saying a deal would "make sense." Yahoo is even cheaper than the $19/share level that first got Microsoft interested. In a shaky economy, giants like Microsoft can afford to go hunting for small companies to snap up.
Now this is so far just an off-hand statement (in appearance). Ballmer could just be testing the waters to see how Yahoo! and its shareholders react. So far today, the market reacted by bidding the share price of Yahoo up.
Yang busted some moves recently dancing with the star of Where the Hell is Matt?, the outstanding internet feature following adventurer and dancer (I use the term loosely) Matt Harding. Don't miss the video at the end of this post, if you're not familiar with Matt. - it's perhaps the most charming, uplifting video I've seen in years.
Of course, who can forget Steve Ballmer's dance at the podium during a Microsoft presentation? And, of course, Mark, 'Gimme the Cubs" Cuban performing on Dancing with the Stars?
Come to think of it, many CEOs are already quite accomplished at performing the fan dance with their balance sheets. Ex-Gov. Spitzer has shown his fondness for the hustle and the shag, while Donald Rumsfeld is still waiting for the cakewalk to begin. Senator Craig seems to favor the swing, while President Bush appears dead-set on taking on the Persian Dance before he waltzes out of the White House.
And me? Having lived through the Vietnam Era, I'm doing the Time Warp again.
Carl Icahn just got more bad news. His bid for Yahoo! (NASDAQ: YHOO) seems to be losing it momentum, and it should. Legg Mason, which owns 4.4% of the portal company, will support the current board.
According to The Wall Street Journal (subscription required), "We believe the current board acted with care and diligence when evaluating Microsoft's offers," Legg Mason Chairman Bill Miller said.
Other large investors may decide to back the status quo ahead of the Yahoo! Annual Meeting on August 1.
Icahn has made two significant mistakes. The first is that he overplayed his hand with Microsoft (NASDAQ: MSFT) by saying that he had more support from Steve Ballmer for a deal to takeover Yahoo!'s search business than he actually had.
The more profound problem is the Icahn has not taken the time or the effort to show Yahoo! shareholders how he would operate the company if he cannot strike a deal with Redmond. In essence, he has not made it clear how he can make Yahoo!'s shares rise from their current level if the company has to be run as a standalone business.
Icahn will lose his proxy fight for Yahoo!. He has not offered anything beyond a break-up or M&A event. Why would anyone support something so thin?
Douglas A. McIntyre is an editor at 247wallst.com.
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.
So, Mr. Softy CEO Steve Ballmer couldn't take the heat anymore. For all his talk about walking away and hostile bidding, he decides to try and make nice with the Yahoo! (NASDAQ: YHOO) board by apparently raising his offer. This man must feel that Microsoft (NASDAQ: MSFT) desperately needs the internet portal (it doesn't). While Yahoo! is definitely a prime force on the 'net, I have to say that, in my opinion, Ballmer should've just stuck to his tough guns and left Yahoo! at the table. But, according to this AP item, The New York Times has indicated that the original $31 per share offer has possibly been increased by "several dollars," this according to that old standby "unnamed sources." The article even indicates that $35 is potentially feasible.
I've got to believe that most Microsoft shareholders will feel aggravated by this. The goofy dance that has been going on between Ballmer and Yahoo!'s CEO Jerry Yang has been, to say the least, trying. I mean, who wants to see Microsoft spend all that money on a company that may or may not properly synergize with Mr. Softy's core competencies. Isn't focusing on the cash-cow operating-system monopoly of more importance? Isn't theOffice franchise worth increased attention? What about the success of the Xbox 360 -- why would Ballmer want to now get sidelined integrating the Yahoo! brand when the Xbox brand is starting to show mega long-term promise? These are the things that went through my mind when I first heard of the Microsoft bid. I mean, seriously, I can't believe $50 billion is now conceivably on the table as a bid for the portal. Sure, Yahoo! is valuable, but probably to another, more suitable company; as an example, I didn't think a combo between Time Warner's (NYSE: TWX) AOL and Yahoo! was that off the wall.
The way I see it, Microsoft is an innovative software company that should concentrate on increasing its free cash flow to grow dividends over time and to make selective, smaller acquisitions that don't require leaps of faith when it comes to integration. I thought Ballmer believed what he said when he stated that Microsoft doesn't need Yahoo! But, I guess Google (NASDAQ: GOOG) is getting under his skin, and his ego would have been too bruised if he failed in his quest to win over the Yahoo! board. Whatever; I still like Microsoft stock on a long-term basis, but I really would have liked it if the most famous software giant in the world didn't take on the risk of owning Yahoo!
Disclosure: I don't own shares in any of the companies mentioned here; positions can change at any time.
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.''
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