The Yahoo!/eBay merger has long been rumored and today gets another whirlwind, but because it’s so logical, we don’t think either side will have the common sense to pull it off. While it’s easy to mention a few of the obvious reasons for the deal: [Yahoo!’s enormous user base] x [eBay’s auction database + Paypal Platform] = Mucho Dinero… the main reasons for this deal are actually:
1 - the totally complementary and non-overlapping businesses: Yahoo! is an ad play, eBay is an e-Commerce play;
2 - the management fit: if you consider that over 50% of Yahoo!’s senior management has left and eBay is known for having a strong bench and as a result the new entity won’t have 2 Snr. VPs of everything;
then you have to ask why this deal won’t happen?
Can you imagine Sue Decker and Meg Whitman running two of the strongest brands in all of Silicon Valley?
Can you imagine a board that boasts both Pierre Omidyar and Jerry Yang?
That would definitely be something.
But back to our point, this deal would not be an acquisition, but rather a merger of equals and I don’t think Yahoo! shareholders would view this as a win.
A quick tale of the tape:
As you can see, the merged company would become a ferocious competitor to any company, be it Google, MSFT, IAC, News Corp.’s FIM or Time Warner’s AOL… but the problem is, shareholders of Yahoo! give up 54% of their company to own something that is still not guaranteed to boost shareholder value in the long-run. Bear in mind, for example, that eBay’s core transactional business is slowing and Paypal will be larger even by its own management’s admission.
And the merged entity is still half of Google’s market cap, though it would boast enough cash to start making more acquisitions, etc., if that was something they wanted to do.
The main strength is that Yahoo! is largely an advertising business, eBay is a transactional business, so the revenue streams would be diversified quite a bit but the P/E and P/S multiples might go down to due eBay’s slowing business.
I’m a Yahoo! shareholder and I’m not sure this would really work with most shareholders, who would probably prefer the immediate payoff of a $50B offer from MSFT.
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June 22nd, 2007 at 2:13 pm
[…] merger will be a good one. As Tim Poulus and Watch Mojo say, there is not much of overlap between them and they can merge as equal partners. Yahoo’s […]
June 22nd, 2007 at 5:36 pm
I don’t see what the motivation is to merge eBay and Yahoo!, is the merged entity greater than the sum of the parts? Hard to imagine given the “non overlapping businesses”. How would the merged entity be better placed to compete with Google or Microsoft?
June 22nd, 2007 at 6:26 pm
Hey Sam, thanks for the comment.
That’s a great question.
A MSFT/YHOO deal would be matching two very similar businesses and implementing them would make them hard, in the sense that it would take months to decide which unit leads on what front:
MSFT has a portal, MSFT has a search.
But guess what? So does YHOO. It’s hard enough to set aside egos, imagine setting aside loyalty and fiefdoms!
I’m no techie, but I’m also pretty sure that MSFT and YHOO are also built on different programming languages.
MSFT’s media business is essentially a mirror of YHOO’s in that they make money from ad sales. Long story short, it becomes an integration challenge.
eBay on the other hand is a fit: its got complementary units, there’s no need in arguing about who does what:
- Yahoo! would lead the ad sales strategy, email service and search.
- Ebay would become the auction marketplace
- Paypal would become an even stronger online bank of sorts.
But adding the audiences would mean more eyeballs for YHOO to sell ads to, more people for eBay to target auctions too, and more people for Paypal to get to use their payment product.
Moreover, eBay has a massive international business, bear in mind that yes, YHOO is very strong internationally, but GOOG is arguably stronger.
Lastly, YHOO has had a lot of talent leave, this would allow them to bolster a lot of key personnel and give the remaining YHOO brass a greater network to exert their muscle onto.
Don’t get me wrong, I also think that MSFT/YHOO would be a good matchup. MSFT is huge and has some great properties.
We should look at this more as the next phase of a massive consolidation. This is bound to happen, otherwise old media companies will step in. I think new media and IT firms ultimately prefer merging with one another than to sell out or accept deals from “outsiders.”