You Had To See This Coming - MSFT To Buy YHOO

I was going to buy Yahoo! the other day. Mark and I were emailing. I was asking how much Yahoo!’s core search business was worth if it was given over to Google. He though maybe as much as $9/share. I looked into the value of Yahoo! Japan and Alibaba. I left a comment on Paul Kedrosky’s blog post about Yahoo!. And I told Portfolio Magazine that the timing was perfect for Microsoft to buy Yahoo!.

But of course I never got around to buying the stock.

We all knew this was coming. Yahoo! was cheap. Too cheap. And a mess. Rats were leaving the sinking ship en masse. It was not sustainable. Something had to happen.

And so the most logical thing has now happened. Microsoft has swooped in with a $44.6bn offer to buy Yahoo! The news is posted on Marketwatch but there is no story yet. WSJ has a small story up now. Danny Sullivan has a great post on Search Engine Land discussing the merits of the deal.

The price offered is an ~70% premium to the closing price last night. This deal will happen unless another strategic wants it (News Corp?). Because at that price, no financial buyer can make the deal work, particularly in this financing environment.

#stocks#VC & Technology

Comments (Archived):

  1. stevenloi

    Thanks for the additional insight, Fred.Any possibility on Google bidding up? Google is search, but Google hasn’t monetized social networks as well as they had hoped (per their earnings call yesterday). They are tied into the NewsCorp deal for another year… why not buy the property that has the most users? That way, they can do all their experimenting… (If I don’t make sense, I’m blaming it on the fact that it’s almost 5am here)Darn it. This breaking news has kept me up 1 hour later than my already late bedtime. PST. sigh.

  2. Curt Monash

    Strategic deal indeed. Microsoft/FAST/Yahoo has a real chance of winning in search-related UIs.And in enterprise search, of course.CAM

  3. Peter Van Dijck

    Yep, you’ve gotta love this business 🙂 btw, here’s a freestyle paragraph by paragraph translation of Balmer’s offer:

  4. Fred Z in Ann Arbor

    Wow, that was prescient of you.

  5. paul

    I was on the conference call from Microsoft this morning, but they only answered questions from financial annalists. I wanted to ask about the cultural differences, I believe the best and brightest Yahoo talent will take the money and run, so much for all the synergies.

  6. Chris Crosby

    If the deal goes through maybe they’ll replace Exchange with Zimbra. One can only hope 🙂

  7. awilensky

    The deal will happen but the management culture clash will be wrenching.I have contacted a few mid level management people at Yahoo who could be described as, ‘Yahoo Purple Lifers”. They have intimated that they will stay and work to make any cultural changes to the organization, and I quote, “as painful as possible for the new Microsoft directors and division Veeps, short of insurrection”.I’ll try and write something up on this attitude that seems pervasive, on my blog, over the weekend. There has been plenty of bitterness over the layoff’s already.

  8. awilensky

    One could also look upon this acquisition as the right and proper harvesting of the equity that Yahoos’s investors and stock holding employees have been waiting for.

  9. kangas

    I think this is *terrible* news for web startups, open-source, and Internet users in general. Yahoo was a pretty good steward of Web2.0 shining stars like Flickr and Delicious. What now?Putting Yahoo! inside of Microsoft is kinda like putting the Woodstock Festival, Jimi Hendrix and all, inside of the Kremlin. Maybe it was going to die off eventually on its own, but you know the life will be snuffed out now!

  10. Robert Seidman

    I bought at $27 and then again at $22 (mostly because of Pincus) but didn’t buy nearly enough at 22….and I DID see it comingMaybe is still available…

  11. Druce

    merging technologies will be difficult, merging cultures impossible.Yahoo is fixable, MSFT is not. put’em together and they’ll just ruin Yahoo.megamergers are for megalomaniacs.

  12. Billy Downing

    Fred, I am curious what your thoughts are on how Flickr may be affected by this potential merger. I think it safe to say that Flickr has been a bright star in web 2.0 services. Will this change under Microsoft? How can Microsoft keep the loyal Flickr user?

    1. fredwilson

      Same issue with delicious and mybloglogI’d like to get ballmer to sell all of them to meFred

  13. scottfromshanghai

    Fred, your comments on delicious don’t mask your disappointment with what Yahoo has done (am sure its likewise with a host of their other deals). That said if MSFT buy Yahoo that takes out one of the major exit routes for startups! Maybe people will have to build sustainable longterm businesses with revenue streams rather than products that they can flip to yahoo/google?

    1. markslater

      All you need to do is try windows Vista. You will see how MSFT are completely mis-executing their 2.0 strategy – the Operating system is simply awful, and the office apps require almost a complete re-learn of the user interface. I bought a new dell for the house with Vista and it crawls.