BUSINESS BLOGS
BUSINESS BLOGS
category: business
21 Feb 2008

Yahoo! is adding an expensive new severance program in place to try to fend off MSFT.

As a YHOO shareholder, this actually backfires on CEO Jerry Yang and the Board.

- For one, it comes across as desperate, and desperate is not a virtue in negotiations or in life in general.

- Second, it shows that YHOO and Yang are indeed acting emotionally in their reaction to MSFT. This is a bigger problem because any solution that YHOO does eventually try to pitch to us investors will ring hollow.  Does Yang and company consider these things?

- Third, MSFT offered YHOO a great deal, while the deal looks increasingly like a done deal, the risk of an externality happening that would derail this remains (war, recession, etc.)  The longer YHOO plays cat and mouse, the higher the likelihood of shareholder lawsuits against Yang and the Board.

Yesterday, MSFT Chairman Bill Gates basically told YHOO to play along by coming to the table if it wanted to avoid a proxy fight (which would force YHOO’s board out of the boardroom) and get a higher bid (which would make the deal go down easier).

Ultimately, MSFT wants YHOO that bad.  Why?  It’s all about the numbers:

Last year, Microsoft reported a loss of $745 million from its online operations on sales of $2.47 billion.

Over the same period, Google’s earnings totalled $4.2 billion on sales of $16.5 billion. Yahoo reported earnings of $660 million on sales of $6.96 billion.

Yahoo! did $7B in sales and profits of $660M

According to Investor’s Business Daily via YHOO.

Cross-reference that now with my earlier posts about how such an acquisition would help create an online ad business that would parallel MSFT’s profitable Windows and Office businesses, you can’t but help but wonder about the long term value creation potential for MSFT shares if they were better positioned for online advertising, which is set to go from $45B per annum to $80B between now and 2010… and that’s probably conservative, a 2006 report from venerable and otherwise trustworthy PriceWaterhouse Coopers pegged Asian online ads to be $110B, which seemed so high that I put in emails and calls but to this day, nothing, nada, zilch…