Tag: tech stocks

Will Yahoo shareholders be Amp’ed?

Brenon Daly

Now that Yahoo has passed on Microsoft’s bid, it’s up to Jerry Yang to show the company’s testy shareholders that soldiering on makes more sense than selling out. That’s going to be a tough job. A handful of shareholders have already sued the Internet company over its decision not to talk with Microsoft, and the disenchantment is likely to spread if the stock returns to the level it was before the unsolicited bid came in. (A quick fact: From the time Yang retook control of Yahoo last June through the day before Microsoft unveiled its bid, Yahoo stock lost nearly one-third of its value on his watch.)

So how is Yahoo going to get its shareholders back above water? One key to the plan is the ‘buy and build’ initiative it has started with AMP. Yahoo’s new online advertising management platform is built on a pair of deals that cost the company nearly $1bn in 2007. A year ago, Yahoo spent $680m to pick up online ad exchange network Right Media Inc, and then followed that up last September with a $300m play for behavior-based marketing vendor BlueLithium.

AMP is slated to come out in the third quarter of this year, although a few publishers are currently test-driving it. The stakes for Yahoo are huge. By its own assessment, the US online ad market will hit $50bn in four years. Securing a chunk of that ad spending will go some distance in silencing shareholder grousing about Yang & Co’s decision to stiff-arm Microsoft. Of course, that’s only if AMP delivers and doesn’t become another Panama-style disappointment at Yahoo. If that turns out to be the case, Yang would be lucky to find a buyer for his company, even at a discount. 

Yahoo’s recent display ad networking deals

Announced Target Deal value
Sept. 4, 2007 BlueLithium $300m
April 30, 2007 Right Media $680m

Source: The 451 M&A KnowledgeBase

Crisis averted

Brenon Daly

After three months of nonsense, Ballmer’s folly is over. Microsoft’s CEO said over the weekend he will not pursue Yahoo, a move that shareholders applauded right from the opening bell on Monday. (Microsoft stock never traded below Friday’s close, while shares of Yahoo, which had been abandoned to trade on the company’s fundamentals, were slashed 15% in early Monday afternoon trading.) In our view, the ‘relief rally’ in Microsoft stock solidifies our view that the company was wrong-headed — both in decision and execution — to go after Yahoo.

We need only look back in Microsoft’s own M&A history to see how unlikely it was to get the kind of returns it was hoping from Yahoo. In early part of this decade, Microsoft inked a pair of deals for business software companies that was supposed to narrow the gap to the long-dominant vendors. In quick order, Microsoft shelled out a combined $2.4bn for Great Plains Software and Navision Software and set about knocking off SAP and Oracle. Executives talked about Microsoft’s division, which sold ERP and CRM software, growing into a $10bn business. That hasn’t happened – not even close. More than a half-decade later, it barely scratches out $1bn in annual sales and increasingly appears technologically and competitively irrelevant. The acquisitions did nothing to make up ground on SAP or Oracle, much less the new breed of rivals including Salesforce.com and SugarCRM. (We recently made the case that Microsoft should divest this unit, called Dynamics.)
Adding Yahoo to Microsoft’s online division would have simply repeated the mistakes of Dynamics. The protracted and messy acquisition of Yahoo would not have gotten Microsoft any closer to knocking off Google from its top spot in online search advertising. To their credit, the folks in Redmond, Wash. saw the past as prelude. And if the cautionary tale served up by Dynamics was a little too close to home, Ballmer could always pick up the phone and call Jerry Levin to ask how Time Warner’s ‘transformative’ $185bn purchase of AOL worked out. Of course, Ballmer tabling the Yahoo bid does leave one question unanswered: Which transaction destroys more shareholder value? Trying to graft a sprawling Internet property onto a media company or trying to graft a sprawling Internet property onto a software company? Even though Ballmer left the door open for a future bid for Yahoo, his shareholders have already indicated they don’t want to pay to find out the answer to that question.    

Short and sour

Date Event Yahoo stock price
Feb. 1, 2008 Microsoft unveils $31 per share unsolicited offer for Yahoo $28.38 (up 48%)
May 5, 2008 Microsoft pulls offer $24.24 in afternoon trading (down 16%)