All this talk about Microsoft and Yahoo is starting to make me sick. Am I the only one who believes that this is all a ploy on the part of Yahoo to stall and hope for something better to come along even though it never will? Microsoft should not even consider upping its bid for Yahoo and although Ballmer and company may know that, it looks like Jerry Yang is still living in a fantasy world.
Why should Microsoft increase the premium on Yahoo's stock price to an even more inflated level? If Ballmer wanted the online firm badly enough, don't you think he would have done that already? And to make matters worse, the current economic condition in both this industry and the macroeconomic environment is not conducive to a bidding war with yourself.
Is Yahoo a valuable entity? Of course. And with its sound business sense and profitable financials, it would make for a nice addition to any company's portfolio. But the real problem is not that Yahoo is making money in this business, it's the fact that it has very few prospects for growth when confronted with the goliath that is Google.
In essence, it's a major player in the online world, but it's not nearly as important to Microsoft as Jerry Yang wants to believe.
In Jerry Yang's letter to "Steve", he wrote that his company is "open to all alternatives that maximize stockholder value. To be clear, this includes a transaction with Microsoft if it represents a price that fully recognizes the value of Yahoo! on a stand-alone basis and to Microsoft, is superior to our other alternatives, and provides certainty of value and certainty of closing."
And although some have said that Yang is looking for even more cash, he's not looking for it in the conventional sense. When he said that Yahoo is looking for "certainty of value", he wasn't saying that he thinks the company is necessarily worth more, but that Microsoft's current plan of acquiring Yahoo with cash and stock certainly doesn't work for the company. In fact, since the drop in Microsoft's stock price when the bid was first placed, some economists have put the real acquisition price at $29 per share instead of the $31 already offered. That's not to say that Microsoft has lowered its bid, but the value of its stock has degraded and so has the value of the acquisition offer along with it.
So what does Yang really want? More than anything, it looks like Yahoo is looking for 100 percent cash or at the very least, an 80/20 split between cash and Microsoft stock. And just in case something goes awry and it's forced to make a deal with Microsoft, don't be surprised if Yahoo asks for something a bit more lucrative like $40 per share.
But in the end, I just don't know why Microsoft would even consider increasing its bid for Yahoo. Why would it? As the company already said, why would it want to bid with itself? If a few more companies jump in the mix, then maybe it should consider working out a better deal, but until then, it should sit back and watch as the shareholders' confidence in Yahoo management erodes.
As it stands, Yahoo's stock price is hovering at around $27 per share and the chances of that rising above the $31 per share mark is slim. To make matters worse, shareholders are witnessing Google increase its search engine market share each day and enjoy revenue that far exceeds Yahoo's best quarters.
In fact, the gap is so wide between the two companies that Google actually turns a profit each quarter that nearly doubles Yahoo's annual income. And although some would say that Google's revenue has no impact on Yahoo's acquisition, I'm not so quick to agree. If nothing else, the disparity in revenue numbers show that Google is far ahead in advertising and although Yahoo is the world's most trafficked site, its ability to monetize its status is abysmal.
Going beyond financials, what sort of benefit does Yahoo possess that would mean Microsoft should increase its bid? The acquisition price is already too high for any competitors to even try to beat Microsoft and the shareholders seem more than happy to get out of the Yahoo game as soon as possible. In essence, Jerry Yang and buddies are sitting on an island and being bombarded from all sides.
There's no reason why Microsoft should increase its bid for Yahoo and if you ask me, it wouldn't make any sense to even entertain the thought. As long as Microsoft waits it out, look for Yahoo to eventually capitulate.