MSFT showing signs of desperation

This really goes on to show the pathetic situation of MSFT. Most of the folks here and elsewhere like to blame the YHOO BOD, but the real story here is that MSFT can't let go of YHOO. This is their last ditch effort to try to acquire YHOO for cheap and hoping that it doesn't tank their stock any more than it has. Its a gamble that they will most likely lose. After Aug1, Yang will win the shareholder vote and the only way MSFT can acquire them would be at a price $33+ and they'll get a much weaker YHOO compared to when they started bidding. Yang is not desperate to sell, especially if the buyer is MSFT. But that is the only move for MSFT on the chess-board, so it has no choice but to pay up.

MSFT is like the guy who bids 20% below KBB price for a used car, and stands in line for public transportation every day, hoping that someday the bid will succeed. Yes, indeed they will succeed one day, but then realize that what they ended up buying was a lemon, because YHOO in this case is a fast depreciating asset. Its just the nature of the industry and the strong position of Google, more than anything else. Yang has managed to sustain YHOO against the GOOG juggernaut. Compare his performance in internet domain to Gates / Ballmer @ MSFT or the guys running AOL. Replacing Yang will only speed up the decline of YHOO.

Those who still like to badmouth Yang and praise Ballmer's conduct throughout this process, I suggest looking at the numbers. YHOO is up about 25% and MSFT is down about 20%. That is the real story. Everything else is a shell game, by folks who have their own agenda.

I'm hoping that YHOO hits ~$25 tomorrow so I can sell and get ready for the next iteration, when MSFT "walks" again after Yang wins the Aug 1st shareholder vote.

For folks paying attention to my comments - I picked the recent bottom on YHOO at ~$19.75 and also predicted ~$25+ on MSFT, which happened last week. My other prediction is GOOG and MSFT would approach each other in market cap in about 6 months. They are getting closer. The difference is down from about ~$91B to ~72B, since I first wrote about this. The GOOG earnings report is due soon and that should help as well.

My earlier comment on Jun. 24th is worth repeating here for context.

Rav (URL) said:
Jun. 24, 1:38 PM
Algorithm:

1. MSFT talks to YHOO about acquisition.
YHOO goes up and MSFT tanks...
2. MSFT walks.
YHOO goes down and MSFT stuck in neutral.
3. Go back to step1 for next iteration.

While MSFT keeps playing those games with YHOO the end result...
- YHOO gets weaker in the market, but still stays significantly higher than its pre-MSFT-bid level of $19
- MSFT loses about 5-10% on every iteration above. Its already down from about $32.5 pre-bid to about $27.5. There's another iteration in progress and the walksters are trembling.
- GOOG improves its market share v/s YHOO+MSFT and laughs its way to the bank. It also has YHOO trapped in a deal where it fills GOOG's coffers one way or the other..

This is great if you are GOOG long, MSFT short and can time the waves on YHOO.

My comment yesterday

Rav (URL) said:

Jul. 02, 9:16 AM

This so called "humiliating detail" indeed confirms that YHOO was engaged in serious negotiations with MSFT. It was MSFT who wasn't serious about its offer of ~$33 and also about offering any valuation guarantees, as has been obvious based on its recent behavior. Its quite well known that YHOO was negotiating for a deal between $31 and $37, but was more concerned about valuation guarantees and regulatory issue, which MSFT chose to ignore throughout the negotiation process. It was Ballmer who chose to walk, not YHOO.

Well my comment yesterday was prescient... YHOO is headed to ~$22 preopen. Here's the comment again:

"
Rav (URL) said:
Jul. 01, 12:23 PM
I guess, its time for another "partial" bid from MSFT. Perhaps this time they offer to buy 30% of YHOO at ~$32. The MSFT stock action seems to indicate that. $26+ is here and next stop $25? Ballmer has made a laughing stock of all the walksters.

YHOO's powerpoint did an excellent job of showing how ridiculous MSFT's so called partial bid was and don't forget that MSFT was raving about the deal in that leaked memo to its own employees.
http://www.techcrunch.com/2008/06/13/microsofts-letter-to-the-troops-our-yahoo-offer-was-better/
Its clear from YHOO's SEC filing that MSFT has been a bad apple throughout this deal - no pun intended.

All you YHOO ranters, here's something to keep things in perspective. During all this hoopla about MSFT's on again and off again bid the end result so far is that YHOO has outperformed MSFT by about 25%. Numbers don't lie, people do.
http://finance.yahoo.com/echarts?s=MSFT#chart5:symbol=msft;range=20080130,20080701;compare=yhoo+goog;indicator=volume;charttype=line;crosshair=on;ohlcvalues=0;logscale=on;source=undefined

MSFT is in a no win situation. If they don't buy YHOO, GOOG will eat their lunch and dinner. If they buy YHOO (or whatever is left of YHOO) decline will be even more precipitous due to integration issues and all the merger related bad-blood. Vista is such a bummer that people prefer "upgrading" to XP. What's to stop them from switching to MACs pretty soon.

With YHOO stock already down to ~$19+, the expectations are set so low that even a modest boost from the GOOG deal will be enough to sustain the stock. Then there are MSFT put, PE put, AOL/Myspace put, asian assets etc... It may be good stock to own in this kind of recessionary environment because its correlated more to the deal action rather than the macro factors. "

Time for a new bid from MSFT?

Rav (URL) said:

Jul. 01, 12:23 PM

I guess, its time for another "partial" bid from MSFT. Perhaps this time they offer to buy 30% of YHOO at ~$32. The MSFT stock action seems to indicate that. $26+ is here and next stop $25? Ballmer has made a laughing stock of all the walksters.

YHOO's powerpoint did an excellent job of showing how ridiculous MSFT's so called partial bid was and don't forget that MSFT was raving about the deal in that leaked memo to its own employees.
http://www.techcrunch.com/2008/06/13/microsofts-letter-to-the-troops-our-yahoo-offer-was-better/
Its clear from YHOO's SEC filing that MSFT has been a bad apple throughout this deal - no pun intended.

All you YHOO ranters, here's something to keep things in perspective. During all this hoopla about MSFT's on again and off again bid the end result so far is that YHOO has outperformed MSFT by about 25%. Numbers don't lie, people do.
http://finance.yahoo.com/echarts?s=MSFT#chart5:symbol=msft;range=20080130,20080701;compare=yhoo+goog;indicator=volume;charttype=line;crosshair=on;ohlcvalues=0;logscale=on;source=undefined

MSFT is in a no win situation. If they don't buy YHOO, GOOG will eat their lunch and dinner. If they buy YHOO (or whatever is left of YHOO) decline will be even more precipitous due to integration issues and all the merger related bad-blood. Vista is such a bummer that people prefer "upgrading" to XP. What's to stop them from switching to MACs pretty soon.

With YHOO stock already down to ~$19+, the expectations are set so low that even a modest boost from the GOOG deal will be enough to sustain the stock. Then there are MSFT put, PE put, AOL/Myspace put, asian assets etc... It may be good stock to own in this kind of recessionary environment because its correlated more to the deal action rather than the macro factors.

This is great!

Rav said:

Jun. 24, 1:38 PM

pathetic? Are you kidding? This is great!!...
Algorithm:

1. MSFT talks to YHOO about acquisition.
YHOO goes up and MSFT tanks...
2. MSFT walks.
YHOO goes down and MSFT stuck in neutral.
3. Go back to step1 for next iteration.

While MSFT keeps playing those games with YHOO the end result...
- YHOO gets weaker in the market, but still stays significantly higher than its pre-MSFT-bid level of $19
- MSFT loses about 5-10% on every iteration above. Its already down from about $32.5 pre-bid to about $27.5. There's another iteration in progress and the walksters are trembling.
- GOOG improves its market share v/s YHOO+MSFT and laughs its way to the bank. It also has YHOO trapped in a deal where it fills GOOG's coffers one way or the other..

This is great if you are GOOG long, MSFT short and can time the waves on YHOO.

More predictions

Rav said:

Jun. 16, 4:36 PM

Guys, I'm out of town so won't be able to spend too much time on this, although I find this topic very interesting. Meanwhile, I'll just refer you to my blogpost on June 6th. This was written before any of the recent events. I'm glad that its turning out exactly as I expected so far. I had also predicted that YHOO will settle in the range $21-23, at which point it becomes a buy. I put my money @ 22.71. If things work out as I expect, then YHOO will settle around $25 by the time the shareholder meeting is done. Then in six months MSFT will end up buying YHOO at $34-35, out of desperation. Standard disclaimer: outlook depends on Mr. market remaining normal...

So enjoy..

http://googyhoo.blogspot.com/2008/06/icahn-playing-good-cop-bad-cop.html

@Alex Schleber

I'm glad that you enjoyed my "tongue-in-cheek" post on what APPL should do to MSFT. For a moment I thought the readers of this blog lost their sense of humor along with the $$ bet on a YHOO acquisition..

Here's an idea for AAPL to consider

Rav said:

Jun. 14, 1:13 AM

Apple should make a bid for MSFT's (smartphone + OS + mp3 player) assets for 5B$ cash. This should include all OS assets including: Code, people, servers, data centers, patents, customer accounts, knowledge-base, buildings in redmond etc.

Combination of cost savings and revenue boost would drive at least $5 billion in incremental operating income to MSFT per year. Apple can then kill all flops like zune, vista etc. As part of this deal Apple should buy 16% of MSFT, using its high PE stock, hoping that some of the PE rubs off on MSFT stock. MSFT should discontinue all its investments in zune+xbox+OS as part of this deal. They can then focus all their energy in making Office work better as the primary goal for the new lean and mean organization.

The combination of the OS, phone and music player assets would unlock new R&D innovation, eliminate redundant engineering efforts and allow for greater scale in serving customers.

Taken together, I believe this proposal would create total value for MSFT’s shareholders in excess of $45 per share. Heck, just a single presentation by Steve Jobs could do this. Btw, its just an estimate, so don't hold me to it.

If MSFT rejects this unsolicited deal from AAPL, pundits can then start analyzing, how crazy it is for MSFT to have rejected this deal.

Difference between MSFT and GOOG

Rav said:

Jun. 13, 7:47 PM

Not content with spinning to the rest of the world, now MSFT has resorted to spinning to its own employees.

Read the following two articles that came out today and you'll know how MSFT strategy compares to GOOG. Which strategy do you think would be the winner?

http://www.techcrunch.com/2008/06/13/microsofts-letter-to-the-troops-our-yahoo-offer-was-better/

http://www.techcrunch.com/2008/06/13/google-drives-towards-microsoft-and-adobe-w

An analogy

Rav said:

Jun. 13, 4:10 PM

The bottomline is this: MSFT wants to milk the YHOO cows without owning them (I believe analogy is Icahn's). GOOG wants to provide YHOO with a gadget that improves the yield of its cows. YHOO is free to use it on whichever cows they choose and on whatever days it suits, as long as GOOG gets a small cut, everytime they use this gadget. GOOG is very clear that they are not trying to own the cows or milk the cows.

Which one is better: Microhoo or GooHoo?

Rav said:

Jun. 13, 3:36 PM

I find it hard to believe that MSFT can monetize better and generate more cost savings than GOOG. The comparison that you are doing is not apples to apples and somewhat dishonest. If you really want to compare then use the same assumptions in both cases.

Assume that _ALL_ queries are outsourced to GOOG or MSFT and YHOO shuts down its internal search related development and support. In that scenerio, I'm sure the boost in YHOO operating income would be significantly higher with the GOOG deal. The $250-$450M they are talking about is based on long-tail which is hard for YHOO to monetize currently, and I'm sure would be hard for MSFT as well.

The way YHOO-GOOG deal is currently structured, eventually they would have flexibility to move towards the goal of full outsourcing, once all the regulatory hurdles are out of the way. So over the long run, GOOG deal would be less risky and a better choice compared to MSFT deal, in terms of monetizing the search share that YHOO holds.

Ring out MSFT, Ring in GOOG

Rav said:

Jun. 13, 11:41 AM

M wants Y. Always wanted Y from last couple of years. But M never wanted to pay a fair price and just bully their way in. M also wanted Doubleclick. But it didn't want to pay. Let's just say that M got Doubleclicked again. Now I won't be surprised if they get pissed off at another loss to GOOG and blow their money on a fad like facebook (just as they did with Aquantive, after they lost Doubleclick). M should realize that its not the nineties anymore and their empire is in decline.

With Gates out and a stock that's been floundering for a decade, MSFT is like a headless chicken running around scared, without clear strategy or goal. All they can hope now is that their buddies in the govt can slow down the GOOG juggernaut. But GOOG has already played this game and played it well. Look at their success in getting DCLK approved and also the wireless spectrum opened up. Look out for more FUD and spin from MSFT. For example:
http://paul.kedrosky.com/archives/2008/06/12/microsoft_is_do_1.html

I think its time for MSFT longs to wake up and smell the coffee. Use this short term pop to get out from the past (MSFT) and get into the future (GooHoo). This isn't really about Y. Its more about the war between G and M, and there is still time to be on the winning team.

What's up with MSFT?

Rav said:

Jun. 12, 5:31 PM

@Victor - I don't think Yang said no to $33. Yang countered $33 by $37 and was probably expecting Ballmer to come back at $35. In fact Ballmer pulled a fast one on Yang and immediately pretended to walk out of the deal. He never tried to negotiate beyond the verbal offer of $33 without any details. You can't call this a mistake because even other big shareholders like Miller were expecting around ~$35 as a reward for holding YHOO for several years. MSFT played the same kind of trick again this weekend. They don't seem to have a sense of urgency or a sense of direction. In the process both MSFT and YHOO are getting weaker and GOOG is getting stronger every day. Not that there is anything wrong with it. :-)

Remember Terry Semel tried to buy facebook for 1B$ and then changed the price to 800M$ at the last moment. MSFT is trying to do the same with YHOO. But they fail to realize that Yang is not desperate and the GOOG boys are his buddies. So he won't stab them in the back, unless the MSFT offer is really really good...

Ballmer Balked and Walked!

Rav said:

Jun. 12, 4:49 PM

@temporal

Very good observation. As Yang said earlier, MSFT didn't specify clearly what they mean by $33 offer. I'm sure YHOO BOD offered to agree to $33 last weekend, with the valuation guarantees. MSFT must have balked at those and walked. This would be very useful for YHOO BOD, when they defend their actions in court. They can just say, "Ballmer Balked and Walked"!!

Rationale for buying YHOO today

Rav said:

Jun. 12, 4:42 PM

Victor, I agree with you regarding GOOG. You'll see that I'm fan of GOOG as well, if you follow my posts.

My YHOO position that I just started today is at $22.71, and is small relative to GOOG. I think its a good hedge against GOOG. If MSFT takes out YHOO close to ~$33, it will cover the potential negative effect on GOOG. If they don't then I have Icahn working on creating value for my YHOO shares. Note that MSFT still has some partial offer that they believe is worth more than ~$33 outstanding for YHOO.

Btw, does anyone know if my shares bought today are eligible for voting in the YHOO shareholder meeting?

MSFT still interested?

Rav said:

Jun. 12, 3:54 PM

Take that - CNBC says MSFT still interested in partial transaction, not in acquiring all of YHOO. Hahaha... no respite for walksters. The millstone is still around MSFT, and its stock is still at ~$28, much lower than ~$32 when this drama started with MSFT's bid.

Can someone tell me what's new here?
1. MSFT still interested in partial transaction, not in full deal. This is exactly what Ballmer has been saying since the AllThingsD conference.
2. YHOO has said several times, MSFT is not interested in full acquisition.

Only thing new I see is that YHOO is closer to a GOOG deal than ever, and significantly cheaper than yesterday.

Long live GOOG-YHOO monopoly

Rav said:

Jun. 12, 3:29 PM

Just bought some YHOO at 22.71$ to go with my GOOG. Guys, wish me luck!

Long live the goog-yhoo monopoly!!!

http://googyhoo.blogspot.com