For a while there, HipMojo.com had turned into the non-stop, 24/7 home of MSFT/YHOO merger news.
It’s now been a few days since any YHOO/MSFT posts… and we’re not alone in getting angsty. Is a deal about to happen? Well, some say that in last week’s SEC filing, Yahoo! hinted that the white flag was about to come out.
While I am sure that MSFT will eventually walk away with Yahoo!, I’m not sure if Yahoo!’s CEO Jerry Yang gets that, yet. Then again, it has been a few days since any moves of stupidity, so maybe this is really the silence before the final storm that beleaguered Yahoo! shareholders have been waiting for. Generally speaking though, the writing’s been on the wall.
According to most analysts polled last week, this was a fait accompli:
* Twenty-seven of 28 financial analysts responding to poll expect Microsoft will succeed in buying Yahoo
* Twelve analysts expect Microsoft to stand by its initial offer price of $31 per share in an equal mix of cash and stock
* Four analysts expect Microsoft to keep offer at $31 per share but make all-cash offer, effectively raising deal value
* Twelve analysts expect Microsoft to raise price to between $31.50 and $35 per share
Truth is, Redmond can afford to pay up:
Even if the Redmond, Washington-based company depletes its cash reserves for Yahoo, Microsoft can easily rebuild its bank account. The company generated $17.8 billion in cash in its fiscal year that ended in June 2007. The company has spent $54 billion in the last two fiscal years on share buybacks and dividends. This comes on the heels of a one-time, $32 billion dividend to investors in 2004.
Over the last five years, Microsoft stock has risen 12 percent versus a 55 percent increase on the S&P 500.
“Microsoft has tried buy-backs and dividends and none of that has done anything for the stock, so it might as well try a big acquisition,” said Brendan Barnicle, Microsoft analyst at Pacific Crest Securities.
While I initially thought the deal would move up from $44.6B to $50B (or about $35.90 per share), I now think that MSFT might eventually be able to land YHOO by merely raising the deal to an all-cash, effective $31/share. I am not saying there is no chance that the deal gets derailed, nor am I saying that there is no chance that the deal gets done for higher than $32… I just think that the probability of a $31/share buyout is highest, and higher than it was a few weeks ago.
Disclaimer: Long - albeit lighter - on YHOO…
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