I used to think that Microsoft should buy Yahoo. It didn't in 2008 — although that was less about Microsoft than it was about Yahoo's unwillingness to sell. Now that Yahoo has entered something of a tailspin, canning its CEO and exploring some sale options, Microsoft is back. And oh boy! What a deal it's looking to make.
But I now don't think Microsoft should buy Yahoo.
Potential suitors said they believe Yahoo’s inherent value is lower than its current share price of about $16.12, which they say includes a “deal premium” reflecting investors’ anticipation of the sale of Yahoo, people familiar with the matter said. The stock has run up since Carol Bartz was ousted as chief executive last month and Yahoo launched a strategic review.
In 2008, Microsoft was offering $31/share. It's traded as low as about $11. I'd say it's worth way more than $16, but in any case, Microsoft is now positioning itself to take a sweet stake, in preferred shares. I think this lessens the chance that I'll get my wish, which is to have Yahoo shed its identify as a tech company and remake itself as a Southern California-based online entertainment juggernaut. Microsoft doesn't need to be buying it. Disney does.
That said, it's clear that hedge funds like Daniel Loeb's ThirdPoint (now seemingly out of the deal) and Silver Lake Partners, the private-equity firm that now appears to be leading the deal, are going to need a very deep-pocketed partner. Microsoft fits the bill and will bring billions to the table. But the Redmond giant is keeping its distance, even as it opens its wallet. Again, the WSJ:
The structure being discussed is unusual, in that Microsoft is not seeking full ownership of Yahoo, but rather acting in effect as a financier partly in exchange for being able to retain some influence over Yahoo’s future, the people said. The two companies struck up an Internet search partnership in 2008, after a failed bid by Microsoft to buy Yahoo. Under the joint bid currently being discussed, Microsoft would not own common shares, they said.
Is Microsoft setting itself up to cherry pick what it wants from Yahoo, by investing not in the company but in its takeover? Yahoo may wind up being a tech company, after all. A failed one whose technology is controlled by Microsoft. In 2008, I felt that Microsoft should buy Yahoo to rescue us from Google:
Our only hope now, as we spy the gruesome Pax Googleannica of Web 3.0 on the horizon, is that renegade survivors of the Web 1.0 pioneer that took its name from Jonathan Swift's race of barbarians will say, "Enough," and join with their former sworn foe to give hope to those of us who see the Web as something better than a merciless "Matrix"-like monetized quantification of all we do and all we are. That's right, as Yahoo makes its Faustian pact with Google, Microsoft -- Microsoft! -- has finally become the heroic underdog.
Now Microsoft is less the heroic underdog than the opportunistic vulture.