Someone give me Merrill Lynch analyst Justin Post’s address, I’d like to send him a gift basket. Today, the analyst came out and encouraged MSFT to buy Yahoo!, or depending on how you look at it, told Yahoo! to sell to MSFT. It’s not the first time someone has brought such a deal up, last year when Google bought 5% of AOL.com, many talked about MSFT and Yahoo! hooking up as well.
I want to thank Mr. Post because as Yahoo!’s shares have slid 20% this year, I’ve been loading up on shares in my portfolio; since his comments today pushed Yahoo! up by 3%, certainly I owe him some thanks.
Please note that I own shares in both Yahoo! and MSFT, though for different reasons. Both are undervalued in my own opinion because they lack sex appeal. I like MSFT because it is extremely disliked by the street, which means that it’s the best time to buy the stock. I like Yahoo! because it is the best positioned company in the internet advertising space and because if the market attrributes a value of $120 billion to Google, then in my eyes, Yahoo! is severly undervalued at $40 billion.
There are so many ways to look at it, but if online advertising is roughly a $20 billion a year industry (I know much of that goes to search, where Google dominates) and Yahoo! has relationships with the Top 200 advertisers, how much do you think Yahoo!’s business will grow over the next few years?
It is this undervalued state that Mr. Post uses as one argument why MSFT should buy it. I do not know Mr. Post, either personally or professionally, but while there is some ‘business school mindset rationale’ for the argument (in other words, sounds great in theory but might not be practical in real life), I do not see Yahoo! co-founders Jerry Yang or David Filo - or for that matter, Yahoo! CEO Terry Semel - ever considering such a deal. First off, why would Yahoo! sell when their stock has been stuck in a rut. Second, why would MSFT blow its entire cash hoard - and go into debt - on one deal. I know they are desperate in Redmond, but not that desperate. Their cash hoard is their salvation (yes, that last sentence is loaded with sarcasm and irony, click here to find out why).
I also think, like the Marketwatch article I read today suggests, that Yahoo! would go through such a talent exodus that the deal would not take place. What on earth would the new entity be called anyway? Microo! Yasoft?
Nonetheless, thanks Mr. Post, that 3% spike today was a welcome relief to Yahoo! shareholders. But ask yourself: if MSFT was incapable of buying a stake in AOL, how can anyone expect it to outright acquire Yahoo! That does not make sense.
Culture matters folks, especially when the company name is Yahoo! and the company color is purple!
Tags: Internet & Web, M&A, Rumors|
Posted By: Ashkan Karbasfrooshan | Jun 23rd
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June 23rd, 2006 at 2:50 pm
[…] Allow me to preface this exercise in insanity by saying this will probably never happen, but after reading Merrill Lynch’s analyst suggest that MSFT acquires Yahoo!, I thought it might be interesting to at least examine the more realistic likelihood of Google merging with Yahoo! […]