One Full-Court Shot Left… Or Why MSFT Should Pay Half Price For YHOO

Posted: March 13, 2008 in Technology and Business
As painful as it is sometimes, I’m still the most optimistic guy in the world about online advertising.
I’ve often said that I think there’s enough room for lots of players, including YHOO.
Unfortunately, there’s lots of room long term.
But given MSFT’s unsolicited bid, YHOO no longer has a long term.
Short term, I think it might be checkmate… they have one potential move left… and that’s to beat earnings soundly.
Unfortunately (there’s that word again), I’m not sure we’ve seen any data in the market that could support a big upside surprise for them.  (GOOG’s latest Comscore numbers ticked up while YHOO’s down.)
More than that, a company carries themselves a certain way when they know their quarter is in the bag.  Vice presidents on panels and conferences say things like, well, what GOOG and Cisco have been saying:  "No, we’re not seeing the malaise hit our business, in fact, we’re seeing positive signs, especially Internationally."
YHOO’s been quiet as a mouse.
If I were MSFT, I’d pull my bid for YHOO and let the stock tank to the low teens… that ugly, ugly downwards momentum might even carry YHOO into the high single digits.
Yes, I know, that’s a 2/3rd valuation haircut… a 2/3rds valuation haircut would just put YHOO’s forward P/E in range with GOOG, MSFT, VCLK, etc… even though each of those companies are out-growing revenues 6x, 4x, and almost 2x respectively!
Then, I’d re-submit my bid mid-to-high teens… which will be about 50%+ premium… but save MSFT about $20 billion… a fraction of which I would use to create too-good-to-turn-down incentive packages for just the killer Yahoo employees (the deadwood can go).
Interestingly, if they keep a 50% cash/50% stock offer, MSFT stock would probably rise 5 points or so since now the market wouldn’t think they were grossly overpaying.  This, in turn, would raise the offer price by a few bucks.  Win-win for all.
If YHOO had more time, of course they could right this situation.
But, they’ve got what amounts to one full-court shot left with 0:01 seconds left on the clock.
22 April 2008 UPDATE:  YHOO missed the shot.
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