February 13, 2008 | Wednesday
Microsoft/Yahoo: The Rupert Murdoch angle
By Jackie Danicki - Blogger in News |Search Engines |Google |Yahoo |Microsoft
Last week, in concluding a post about Google’s response to Microsoft’s bid for Yahoo, I put forth the possibility of Rupert Murdoch making a play for AOL. But it turns out the much more interesting possibility is a Murdoch grab for Yahoo - and the News Corp mogul burning the toast of Bill Gates and Steve Ballmer by doing so.
Yahoo’s board must come up with a deal that makes Yahoo at least as valuable as Microsoft’s bid. How does Murdoch get to $45 billion? By injecting $15 billion in capital into the company. That could come in the form of MySpace and the rest of News Corp.’s Fox Interactive Media division, valued at roughly $6 billion, and $9 billion in cash from News Corp. and perhaps some private-equity funds. They’d exchange that for $15 billion in freshly issued Yahoo shares. Yahoo’s existing shareholders would own three-quarters of a $60 billion company, while News Corp. would own a quarter. Presto, instant value! As a bonus, News Corp. would become a large shareholder in Yahoo, capable of blocking another advance from Microsoft.
There are also rumours that Yahoo is very interested in merging with AOL. This doesn’t make a whole lot of sense no matter how you slice it. As Mike Arrington points out:
AOL plugs none of Yahoo’s holes - no search marketing platform (Google handles that for them). No algorithmic search technology (ditto). And very few actual searches (they have 5% market share, or less)...If Yahoo wants to take control of AOL’s various properties and users, fine. But they still need to figure out a way to compete with Google.
Meanwhile, Microsoft is not taking Yahoo’s rejection lying down. And no wonder: the company lost $38 billion from its stock value between 31 January and this past Friday. Yes, Microsoft ”shrunk by a Yahoo” in eight days.
It seems Microsoft CEO Steve Ballmer is determined to make Yahoo an offer it can’t refuse. More to the point: He wants the offer already tendered to be the one Yahoo shareholders won’t refuse. To that end, Microsoft has called in a proxy solicitation firm in preparation for a proxy battle to usurp Yahoo’s board of directors. The firm has put out feelers to Yahoo shareholders by ringing them directly. Already it has emerged that some very big Yahoo investors are keen on a deal with Microsoft.
Mutual fund giant T. Rowe Price, which owns 18 million shares of Yahoo! said yesterday that it would be “very vocal” if Microsoft raises its offer and Yahoo! rejects it again. Capital Research and Management, Yahoo!’s largest investor with a recently raised stake of 11.6 percent, is said to favor a deal as well. But like many other big holders of Yahoo! stock, CapRe also owns a giant chunk of Microsoft worth about $15.7 billion and does not want to see Ballmer overpay for Yahoo! Investors that own roughly 30 percent of Yahoo! shares - including Barclays, Vanguard and State Street - hold a combined stake in Microsoft worth a whopping $58 billion.
RBC Capital Markets analyst Jordan Rohan predicted Yahoo!’s board will have little choice but to sell the company if Microsoft raises its bid to $35 or $36 per share. “Yahoo! management has already exhausted the patience of its largest, longest-suffering shareholders,” Rohan said.
There is lots of noise surrounding Yahoo chief Jerry Yang’s decision-making at this time, and just how rational he is (or, more importantly, isn’t) being. As MIT’s Philip Greenspun put it so poetically:
If I were a Yahoo shareholder, I would be looking at purchasing an old battleship right now, sailing it into San Francisco Bay, and lobbing some 16″ shells on the Board members’ houses in Atherton. The chance of a Yahoo shareholder ever getting more than $31/share, adjusted for inflation and risk, seems remote.
If I were a betting woman, right now I’d put my money on the Microsoft/Yahoo deal happening - eventually. Not without a fight from Yang, though. And not without many gigabytes’ worth of speculation, rumour, and fantasising spilling across the tech and media web. Who needs TV with entertainment like this?
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