An Old Economy version of Microsoft-Yahoo?

Contact: Brenon Daly

Where have we heard this before? A diversified, dividend-paying company makes an unsolicited approach to a target that’s only just into a restructuring program, with a goal of bolstering a business where it’s currently an also-ran. Add to that, the would-be acquirer isn’t particularly known for its brass-knuckle M&A tactics, while the would-be acquiree is busy dealing with an activist shareholder. No, Microsoft isn’t reheating its offer for Yahoo from early 2008. Instead, it looks to us like Kraft Foods has borrowed that play in its reach for candy company Cadbury.

Actually, the Old Economy rendition of Microsoft-Yahoo appears to be simply a cheaper version. For starters, there’s deal size. Microsoft’s bid of some $45bn for Yahoo is nearly three times the amount that Kraft has initially put forward for Cadbury. (We say ‘initially’ because Cadbury is trading above Kraft’s current cash-and-stock offer.)

Also, Microsoft offered a substantially richer premium for Yahoo than Kraft has indicated for Cadbury, roughly twice the level. And, Microsoft’s bid valued Yahoo at roughly 32 times trailing EBITDA, about twice the multiple that Kraft is planning to hand over for its reluctant partner. Of course, none of the largess flowing from Microsoft was enough to sway Yahoo’s board or executives, much to the dismay of shareholders in the search company. Yahoo shares currently change hands at less than half the amount Microsoft offered for them some 18 months ago.