Saturday, May 3, 2008

Microsoft's Mulled Merger Melts

Hopes of Microsoft's successful bid to buy Yahoo melted because of price disagreements, and shareholders of the internet firm who had banked on the software giant, being the only firm with pockets deep enough to bail them out, have lost their only hold on a windfall. Microsoft had raised its original offer from $44.6 billion to $47.5 billion at $33 per share, but Yahoo had insisted on $53 billion at $37 per share. After the meltdown and withdrawal of bid, Yahoo Chairman Roy Bostock dismissed the bid as a distraction despite incurring losses in all four quarters of 2007.

Even after bringing back co-founder Jerry Yang to restore Yahoo's dominance, the effort failed to produce intended results. Yahoo focused on content to attract more audiences, its chief rival and now the internet's undisputed dominant player Google catered to what user's needed, good search results. A study undertaken in August 2007 reveals that Google carried out 37 billion searches in that month alone compared to Yahoo's 8.5 billion, resulting in Google's revenues stretching by a mile versus Yahoo's.

In the case of Microsoft, Google's growth into a billion dollar business has spilled over to Microsoft's territory - competing in its core business in e-mail and word processing; as well as advertising revenue. Despite its 90% dominance in the PC market and its robust financial resources, Microsoft knows this stronghold is getting less important; and the future of IT is in the rapidly growing mobile internet space, which Google has announced its preparedness to conquer and claim. Both seek the same market but with different approaches. Google will enable users to organize human knowledge by providing the tools; Microsoft provides tools that help users process and use information. Their battle will be at the center of the mobile space - like Star Wars.

The merger would have been an admission by Yahoo of the flaws in its attempts to turn the company around, and Microsoft's fear of Google's success. To make matters worthwhile, Microsoft has to show that combined, the merger can offer a superior business model both entities were not able to achieve as separate companies - like developing search algorithms that surpass those of Google. All these speculations are water under the bridge now. Yahoo has stuck to its position because of predictions it's value will double from $40 billion to $80 billion in 2010.

If the expected drop in share values on the collapse of negotiations do not continue till then, and the uncertainty among its investors about the management of the company is stabilized quickly, that expectation may be a dream realized. However, if the revenues decrease and losses increase; and Google leaves Yahoo biting the dust, investors may dump their shares sinking its value further. The expected movement in share values 2 years hence will still happen - in reverse!



ZenDenizen said...

Sore topic for me considering I lost my job after The Evil Empire merged with another lesser, evil empire...

Tommy said...

This deal has been wrong from the get go and it kind of makes ya wonder why they kept after it for so long. Yahoo's overvalued self worth issues will be it's downfall. Didn't some big dog get canned there today or yesterday?

Kim said...

Star Wars !!!
great analogy Durano....
I'm putting my money on Google....
I think they have a lot to offer with blogspot and I doubt whether I'll ever change it over to my domain that sits pining away through neglect :)

durano lawayan a.k.a. brad spit said...

Hi Zen,

Awwwww, I remember your post about it. Sorry you had to be reminded of this Zen.

Mergers may be more commonplace now because of the recession and the need to consolidate resources to remain competitive. The very sad part is that jobs will be made redundant too and pink slips will have to be distributed all over the place.

It's a little unfair to the employees if you think about it. These are the people who are doing their jobs, the higher ups were responsible for the failures; but they get good exit packages while the employee gets nothing.

Anyway, as the Catholics say, "blessed are the poor for they will inherit the kingdom of heaven". I don't even know if I got that right. :-) --Durano, done!

durano lawayan a.k.a. brad spit said...

Hi Tommy,

Yes, it wasn't a good deal to begin with. They were hoping to create a company that could take on Google, but what if the merger created a monster like Frankenstein instead, big but dysfunctional?

The former President was sacked at Yahoo to make way for the return of Jerry Yang, but this Jedi must have lost the Force, since he has yet to weave any semblance of positive movement.

An analyst says that Yahoo's fondness for writing its name with an exclamation point may soon be replaced by a question mark. :-) --Durano, done!

durano lawayan a.k.a. brad spit said...

Hello Kim,

"My domain that sits pining away through neglect" LOL!

It sounds so distant. Like some 15th century kingdom forgotten by time where trumpets and town criers remain the form of announcements for news and events. And yet Star Wars were the first words you wrote.

The poles of your thoughts are remarkable, between the reality of the present and the nostalgia for the past.:-)

It's very difficult to change. It's like moving from your old home to a new one. Packing and unpacking, cleaning, setting up, makes you feel tired thinking about it.

Blogger and blogspot continue to add improvements. My thoughts too are to remain with blogspot. I'll stay with the Gods of the internet until they throw me out.

By the way, I checked what you said you saw on your toolbar about my page rank, lo and behold, it has been restored! I wonder what reason they had for taking it off and ranking it zero. Anyway, I haven't reapplied for the widget on PR yet as they might change their minds. :-) --Durano, done!

JC said...

Ever since yahoo took over mybloglog, the service has been sooooooooooooooooooo LOUSY!

It's time to make a spitoon out of Jerry Yang's face. After all, he's Chinese, that's where the spitting vessel originated, isn't it?

durano lawayan a.k.a. brad spit said...

Hi JC,

You're so mean. :-)But hilarious!

I agree, MyBlogLog looks so cluttered and disparate and it makes navigation confusing and difficult. It's like the designer rushed outside, lost his notes, and couldn't find where he began and where he ended - and went on to pick another spot to start on.

When Jerry Yang appeared in a congressional committee to explain why Yahoo gave the identity of the Chinese e-mail writer who sent criticisms of China's policies - I wrote a post about it and said that this could be the beginning of the end for Yahoo. How prophetic don't you think? That was only about November last year, I think.

Their shares dropped 20 % in Europe today and chances are the same will happen when the US market opens in a few hours. They have not stabilized the investor's disappointments, and, as I expected, their shares are falling!

If this keeps up, Yahoo will have to replace that exclamation point in their logo with a question mark! :-) --Durano, done!

Tommy said...

And Wall Street chimes in with a hearty Yahoo slap down.....Shortly after 10 a.m., Yahoo’s shares were off nearly 20 percent, at $23.92, down from the close of $28.67 on Friday — a day when the companies were said to be escalating their talks on a merger.

durano lawayan a.k.a. brad spit said...

Hi Tommy,

I know, I've been watching the boards. I just posted an update too!
:-) --Durano, done!

Allan said...

Great post Durano!

The share Yahoo price has continued to fall, and it will be interesting to see what happens next.

I doubt that Microsoft will walk too far way from the table, and I wouldn't mind betting that the walk could be a part of their strategy.

Where is Google in all of this? In my mind they have become almost as much an 'Evil Empire' as MS...


durano lawayan a.k.a. brad spit said...

Hi Allan,

There aren't many companies out there that Microsoft can buy that would have the size and influence of Yahoo. And I agree with you, they won't walk too far away, but would hedge on a lower price as Yahoo continues to fall.

Google is the Lord of the Internet and would MS is bent on challenging that title. As I said, this will be a Star Wars saga. :-) --Durano, done!

Kim said...

ah yes Durano....
the gods of the internet...even more so since this post....
the widgets that show PR are very temperamental indeed...mine shows a 0 one day and a 5 the next :)
thank goodness for the google toolbar...

durano lawayan a.k.a. brad spit said...

Hello Kim,

Just a reminder, be careful what you post about Google, they have bots everywhere and they are the "Big Brother" of the world.

Their signals are planted in your hard drive that's why they know your exact preference whens you search for certain subjects. Creepy huh! :-)

Ooops, I better be careful lest I return to zero. :-) Durano, done!