Thursday, July 10, 2008

Who is inconsistent - YHOO or MSFT?

Guys, lets do some math here.
MSFT's only well-defined offer for YHOO so far was for $31 / share, half in cash, half in stock. MSFT stock has lost about 20% during this time. So that deal would be worth about $27.9/share today. MSFT stock has lost about 20% without the bid being accepted by YHOO. If YHOO had accepted the bid, its not unreasonable to assume that MSFT may have lost about 10% more. This would put the deal around ~$26.25. Then there is regulatory uncertainty and almost 9-12 months of scrutiny. Discounting that YHOO would probably have traded close to ~$25 had Yang accepted the original $31 offer from MSFT. It has been trading in that ballpark during the last few days. The market and economy have severely worsened during this time. That would have put even more downward pressure. So it wasn't illogical to have rejected that offer.

I can agree about the mismanagement of YHOO during the Semel days and Yang's inaction during that time. However, I think his actions since the MSFT bid have been quite reasonable, based on the math above. No matter what you think of Yang, you have to certainly agree that MSFT has been very inconsistent throughout this process, which may hint at ulterior motives and put a question-mark on their sincerity. All the Gordons and Millers of the world could not have predicted this inconsistent behavior of MSFT. That's the reason they didn't pressure Yang to accept the deal at $31 early on and were holding out (and still holding out in some cases) for more.

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