Microsoft + Yahoo = Weapon Of Cash Destruction
February 03, 2008
– Comments (6)
There have been a number of funny questions about what to call the new entity, whether it should be Microhoo or Yahsoft and whatnot. But just from a pecuniary viewpoint I would say this is good for the Yahoo! shareholders and bad for the Microsoft ones. Why?
For the Yahoo! shareholders the answer is obvious. Yahoo has been losing relevance for years now. It's name is not a verb. I can't remember the last time I used it for search functionality, which used to be its highpoint. And while they have some nice specialty content (Yahoo! finance is still my first stop when looking up stocks) I don't see it making them much money. So as a way to cash out this looks like a godsend. If I were a large holding, I'd be telling management to to take the offer now.
On the Microsoft side, things are murkier. Some of Microsoft's best products were things they bought. (Like Excel.) But a lot of their acquisitions have been nothing but sandbagging ploys. And a lot of the in-house projects away from their core business have been of indifferent success. (Like XBox, which might be profitable, but the ROI has to be pretty low.) Or the Zune. Or the thing that was supposed to compete with Palm before they both got torpedoed by the Crackberry. Or anything outside of the core OS and MS Office product lines. And many of them have burnt large piles of cash.
My guess for what happens now is that the deal will go through and will not be an utter disaster. But it won't push Google out of the way. And it will have burnt up the MS cash pile. And the ROI will be nothing spectacular. And Microsoft will have completed its transition from fast grower into mature company that gets a 15 PE ratio. And did I mention that the MS cash pile will be gone? In retrospect this may be a classic case of paying way too much for an acquisition that ended up not making much money.
Chris - no position in Yahoo!, sold the Microsoft a few months ago
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