Yesterday someone asked me at lunch whether I thought MSFT would complete the deal with Yahoo. I’ve got no insider information, I’m not trading on this at all. I’m just a guy who worked within the ‘Soft for a decade. Here was my prediction:
Microsoft would get Yahoo. MSFT may have to pay slightly more.
My rationale is that the current ploys of AOL/TW or the YHOO/GOOG don’t seem credible as deals. They seem more credible as the final moves of YHOO’s end-game to get MSFT to raise it’s bid. The moves as end-game likely have the capacity, in conjunction with the recent fall in MSFT’s share price, to drive a slight price increase on MSFT’s side.
Here’s my rationale:
First, the more interesting of the two ploys is the AOL/Time Warner one. If I were Mr. Bewkes, newly minted CEO who plans to take over Chairman role at the end of this year, I wouldn’t get in a bidding war with MSFT on this with a 50′ pole. Two key reasons.
One, MSFT has a far better balance sheet: a ton of cash, margins that still throw off a ton of free cashflow, and effectively no debt. Time Warner, on the other hand, not so much.
Two, Mr. Bewkes is taking over a company still scarred by the historically catastrophic acquisition of AOL at the height of the bubble. I could see an argument that things are calmer now, but think about it. If you were Mr. Bewkes, would you really want your first big acquisition to be an internet juggernaut that you ‘won’ in a bidding war with Microsoft? It’d be an interesting choice, I guess, but I’m dubious. It’s more credible to me that Mr. Bewkes and TW are proving a stalking horse, ensuring that MSFT / MSN don’t get it too cheaply.
The second Goog/Yhoo ploy is, in my mind, goofy. The scenario appears here to be a short-term road test of a Google Ad Partnership, hopefully yielding data that would make a YHOO/GOOG partnership break-through or drive MSFT to a higher bid. The level of crispness and detail around this is shallow–sounds like something being hacked together last second. Are we supposed to buy that some short-term 2 week test is going to provide material data that’s going to really take things over the top? It seems particularly random, given YHOOs claim it discussed a larger partnership with GOOG in Europe last year, but decided not to last year. If the partnership wasn’t worth doing in Europe last year, why should I believe that a smaller test now is one that will make a difference now?
This “test” partnership sounds cute and spunky, but despite the name brand of GOOG being there, it just doesn’t ring true as a credible alternative.
Sum it up together, I think MSFT ups it’s bid by under 10% and gets Yahoo deal by the end of the month.
Other estimations welcome.