The rumors flying around over this past year may very well come true. Microsoft makes a $44.6 billion dollar bid for Yahoo. According to NewYorkTimes that represents a 62% premium to the existing stock prices and places a $31.00 valuation on Yahoo. The stock is already up 59% in pre-market trading for today on the news. This comes two days after missed earnings and a 7% layoff of the work force (roughly 1000 people).
The likely-hood of the transaction consummating is extremely high in my opinion for 3 reasons:
1. Microsoft has a boat-load of cash and can entice Yahoo with more cash than stock in the deal.
2. This offers a truly high premium to existing shareholders and business mantra is still to “maximize shareholder wealth”.
3. Micro-hoo will become the premium destination in terms of traffic on the Internet and a powerhouse in search advertising.
This may cost Microsoft in the short-run but will put them in a dominating advertising revenue position on the Internet. Remember Microsoft purchased advertising companies aQuantive for$ 6 Billion and Yahoo purchased RightMedia for $680 million. Couple that with MSN and Yahoo portal along with all the ancillary services like Yahoo Mail, Answers, Hotmail etc.. surely a lethal combination to compete against the Google-DoubleClick merger.
This will be fun to dissect and compare as we move forward on this news.