absolutely alex’s adventures & times

Pundits can deride Microsoft for walking away from the hostile Yahoo takeover deal as much as they want, but Microsoft can heave a sigh of relief for dodging a bullet.

No, Steve Ballmer was not being all hat and no cattle, as some have labeled his action for withdrawing from the attempt to buy Yahoo after a three-month wrangle.

In the end, it was a smart move by Ballmer and the people at Microsoft.

AP photo

Basically, he listened to his shareholders and his people, who thought it was dumb to pay $47.5 billion for a second-rate also-ran company that did not know a good deal when it hit it in the face, and furthermore let its pride get in the way of its prospects. The fact that Microsoft’s stock declined on news of the unsolicited takeover offer should have been reason enough to convince Ballmer that investors did not think that the proposed deal was a good idea at all. It was a good thing that he pulled out before more damage could be done to Microsoft.

Talk about cheek. Yahoo was trading at an anemic under-$20 a share before Microsoft surprised the industry with its takeover offer in late January, boosting Yahoo’s share price to the high $20s thereafter.

At Microsoft’s $33 a share offer, Yahoo’s shareholders should be busy hiding its glee and just take the money. Instead, it stubbornly clung to the notion that its shares were “undervalued” by Microsoft’s offer and won’t stand for anything less than $37 a share.

Fat chance. Yahoo’s shares had not seen those heights in two years. On what basis would Microsoft justify paying that kind of money for Yahoo to its shareholders?

Yahoo co-founder Jerry Yang might have been playing chicken, in the hope that Microsoft would blink first and give them a few more dollars per share.

But Yang instead gave Ballmer the out that he was looking for to kill the ill-fated deal.

Now Yang and Yahoo’s board could face a flurry of investors’ suits, at their fury of Yahoo’s folly for rejecting the best deal it could have been offered.

Microsoft should just let this go and forget about going back to the table with Yahoo, despite rumors that this isn’t yet completely finished.

With the $47.5 billion price tag it was willing to pay, Microsoft should look to score a game-changing partnership, not one that would still play a distant second fiddle to Google. It really does not make sense to spend that massive kind of money buying a company that will not have the ability to knock Microsoft’s ultimate enemy out. Remember — eyes on the prize. If it has that kind of war chest to throw around, Microsoft should reach higher and get a truly innovative company or partnership that could break new ground or change the rules of the internet game.

Or it could use that kind of money on research and trend-spotting to get onto the next big wave in internet advertising, internet search or other kinds of networking trend. Microsoft is pretty unique among big technology firms for its substantial cash hoard and just think of the kind of innovations it could come up with, should the money be invested in the appropriate research and development.

Microsoft seems to be pursuing that approach now. Its chairman Bill Gates has just said the company is looking to go down an independent path. “We will make the advances that give people a great choice there,” he said, referring to internet search offering.

Microsoft does need to innovate to beat Google, which dominates internet advertising and search. But partnering Yahoo would not be the way to defeat Google. Microsoft would be better off going it alone, or finding a partner truly worthy of taking on Google. And Microsoft should hang on to its billions until the right deal and the company worth battling for comes along.

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Microsoft chief executive Steve Baller must hate to face “I told you so!” moments. Yet he had to endure one in a most public way yesterday.

Nobody out there really believes that the takeover of Yahoo was a good idea for Microsoft, so who was advising Microsoft again? It ought to demand the money it paid for advisory fees back.

But it seems like Steve Ballmer is only getting the full extent of the folly of Microsoft’s unsolicited $42.3 billion bid to buy Yahoo.

At a Seattle conference for Microsoft fans yesterday, Ballmer asked how many of them used Yahoo’s search pages as their main resource. Unsurprisingly, only a few souls raised their hands. What’s worse though, is that fewer of them use Yahoo than Microsoft’s own Windows Live search. Uh-oh.

(For the record, even Microsoft geeks favor Google. They responded that Google is the main search engine they use.)

Ballmer had the good humor to joke at the results of the unscientific survey of search engine use. “Wow! We offered 31 bucks a share,” he quipped.

Yes Ballmer and Microsoft, nothing like a reality check. They over-bid on a weak product. Bad move. Didn’t they notice that Microsoft’s stock fell discouragingly when news of the hostile takeover plans broke? Conversely, Yahoo’s shares surged following the news. Investors know.

Perhaps if Microsoft is still keen on swallowing Yahoo, it should work harder to get News Corporation in on the deal. The joint bid — which will plug in Myspace, fast becoming one of the most popular music downloading sites, besides being a successful social networking site for teenagers — makes better sense and looks like it could pose a stronger competition to Google.

Incidentally, Google’s better-than-expected results yesterday are not a good omen for Microsoft. Yahoo could cite Google’s healthy web advertising earnings as an example of the viability of web advertising and the potential it holds in that. Not that Yahoo has done particularly well in that area, of course, but it is the power of its potential to give Google a run for its money in the web advertising business, if the chips were properly aligned, that helps Yahoo strengthen its hand in the bargaining process.

Yahoo reports its earnings next week and analysts are not sanguine about them being anywhere as spectacular as Google’s.

Google’s CEO Eric Schmidt might have said that, “It is nice to be working with Yahoo, and we like them very much,” but there remains no way that besides the outsourcing experiment that Yahoo has done on its search advertising business with Google, the two could come together, due to anti-trust issues in the US and Europe.

Yahoo might go on fighting Microsoft’s offer but that is the best option it has. It still might not be a good deal for Microsoft to absorb Yahoo. But for Yahoo, Microsoft’s resources and its determination to take on and beat Google might be its only salvation in the long run.

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You have got to give Steve Ballmer props for the chutzpah to think big and be aggressive.

So Yahoo turned down Microsoft’s takeover offer.

No problem, Ballmer is cutting off Yahoo’s options by reaching out to one of its potential white knights, New Corporation, instead.

Word has leaked that Microsoft is talking to News Corp to hammer out a plan to jointly take over Yahoo.

Now, that is a brilliant move by Ballmer.

While the talks between Microsoft and News Corp are still at a “sensitive stage” according to the New York Times, think of the scale of that tie-up if it does come to pass.

Microsoft’s MSN network, together with News Corp’s MySpace, and Yahoo’s search engine. It could be a strong company that would be a worthy competitor to Google, the undisputed cyberspace king.

News Corp had been keen to talk to Yahoo as a potential savior and help it fight Microsoft’s absorption. But after some early enthusiasm, News Corp had decided that it cannot fight Microsoft’s war chest. If it comes to an agreement with Microsoft to team up to buy Yahoo, Yahoo would have one less white knight it could turn to for help to escape Microsoft’s grasp.

A Microsoft-News Corp partnership also potentially means a higher bid, something that Yahoo had insisted was its bug bear with Microsoft’s $44.6 billion offer. If the amount was raised, Yahoo’s management will find themselves hard-pressed to resist and unable to answer to shareholders if it once again spurned the boys in Seattle.

No one else would even dare to counter offer, or be mad enough to go into a bidding war against the Microsoft and News Corp giants. Which means Yahoo will have to be a reluctant bride.

But Yahoo is fighting back. It has just announced a temporary advertising tie-up with Google. Under the deal, Google will be place ads alongside search results on Yahoo’s website. The pilot would find out if Yahoo could get more ad revenue if it outsourced its advertising to Google.

The two-week trial, Yahoo said, does not mean that it would lead to a partnership with Google. Analysts agree that there are very slim chances for a Yahoo-Google tie-up due to anti-trust issues, but it would be a good opportunity for Yahoo to prove that Microsoft’s unsolicited bid is undervaluing the company.

“We do not think a broader or longer-term Yahoo/Google search partnership would pass regulatory muster,” reckons a Standard & Poor’s note to clients, obtained by the Financial Times. “Nonetheless, we believe such a deal suggests that Yahoo is less likely to accept Microsoft’s current offer.”

Yahoo still has about three weeks left to accept Microsoft’s original offer before Microsoft gets tougher, but has refused to negotiate unless Microsoft sweetens its deal. It might be sweating a little more, now that News Corp seems to have gone over to the enemy’s side.

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Yahoo must really hate the idea of being bought over by Microsoft, or else its management is living in dreamland. Or perhaps it is just playing the game of extracting a higher price from Microsoft.

In the hope of fending off the Washington-based giant after rejecting its offer, Yahoo started leaking word that it is in talks with companies like Time Warner and News Corporation for a partnership.

Unfortunately, the plan that Yahoo and News Corp is allegedly discussing is uninspiring, to say the least.

The talk is that News Corp will pump money into Yahoo, taking a 20 per cent stake, while redirecting its hugely popular social networking site MySpace towards Yahoo’s care.

But where is the benefit of this for Yahoo?

Yahoo stands to gain eyeballs but that would not help it in the areas that matter, such as working out a strategy to transfer those views into advertising dollars or capturing a bigger share of the internet search market.

Shareholders at Yahoo will surely cry foul at an inferior deal if the News Corp and Yahoo talks work out.

Financially, it does not make sense for Yahoo to walk away from the huge premium that Microsoft has offered it, the stock and cash offering currently to the tune of around $42 billion, which values Yahoo’s shares at $31 each, over the stock’s price of $19 apiece when Microsoft first made its offer about two weeks ago.

Yahoo can expect lawsuits from shareholders if it chose News Corp over Microsoft. It would also make it easier for Microsoft to force out Yahoo’s board members with the reason that it is not working in its shareholders’ best interests. In fact, one of Yahoo’s largest shareholders, investment firm Legg Mason, is supporting the tie-up, if Microsoft would offer a little more.

Given the circumstances, analysts believe Yahoo’s strategy of speaking to News Corp is a calculated gamble to wring a higher price out of Microsoft. Talk is that Yahoo believes it should get about $40 per share.

But Yahoo really does not have much of choice here. If it pushes too hard and turns Microsoft off, it risks seeing its share price plunging.

There are effectively no other buyers out there with the kind of deep pockets, and more significantly, the cash reserves, of Microsoft. No other company would make as bold a move as Microsoft’s. In fact, Microsoft has been seen as over-valuing Yahoo and putting in too high of a bid. Its offer is a great opportunity for Yahoo to cash out, since it is now a middle-aged operator in the tech world, possibly running out of ideas to compete with the likes of Google.

The more meaningful thing for Yahoo to do now is to sit down and negotiate a better price and arrangement with Microsoft.

So like it or not, Microsoft swallowing up Yahoo is pretty much inevitable. Yahoo should suck this up and take the money below it is too late.

Billionaire extraordinaire Warren Buffett has spoken, and this time, he directs his wrath against the banking system and its greed.

Buffett called the banking meltdown “poetic justice” for bankers, their chickens coming home to roost for designing complex investments which are now haunting them and their companies’ bottomlines.

“It’s sort of a little poetic justice, in that the people that brewed this toxic Kool-Aid found themselves drinking a lot of it in the end,” he said in a corporate event in Toronto.

True, but Buffett has unfortunately overlooked two things – the evil bankers whom he derided would still have plenty of cash and get rescued despite their missteps, while ordinary folk who have done nothing wrong but save their earnings have been hard hit by the developments.

Witness the Federal Reserve’s bailout of the bad bets made precisely by the bankers vilified by Buffett. Interest rates have been cut aggressively by 1.25 percentage points in two successive steps last month, as the Federal Reserve got nervous at the extent of the damage to the housing market and the stock market. But these cuts are driven more by a panicky reaction to the falling markets than inflationary worries, a point that worries economists about the Fed’s handling of the economy.

And bankers don’t seem to lose the shirts off their backs when they develop sloppy investment instruments that falter badly, taking the economy down with them. These self-styled masters of the universe still get their hefty bonuses. And if they were fired, such as Merrill Lynch and Citigroup’s bosses, better yet – a cushy package ushers them out to continue playing their golf games. Or allows them to move on to start other dodgy hedge fund businesses. Or they might even be back at a different firm which would allow them to wreak more havoc in the very forgiving industry in which they operate.

Despite some spectacularly bad investments, banks still have many willing rescuers – witness eager sovereign funds like the Singapore government’s investment arm, Government of Singapore Investment Corporation, injecting $10 billion in funds into Swiss bank UBS, and Merrill Lynch given a second lease of life by selling $5 billion in new stock to another Singapore government investment arm, this time Temasek Holdings. The Abu Dhabi Investment Authority has also thrown $7.5 billion at Merrill, while the Chinese government’s investment company has bought a $5 billion stake in Morgan Stanley.

Meanwhile, ordinary folk are the ones left footing the bill – tougher credit, substantially lower interest rates, and the threat of a recession, which means possible job cuts.

So much as I think Buffett has often been a good Samaritan in the greed-fueled world of business and finance, giving away some 85 per cent of his Berkshire Hathaway stock worth over $40 billion to five foundations, his comments this time do not quite hit the mark.

But that is more that can be said of Google, whose ostensible motto is “don’t be evil”.

Google has been seeking to thwart the Microsoft-Yahoo tie-up after Microsoft’s unsolicited $44.7 billion bid for Yahoo.

Reasons it offers against the Microsoft-Yahoo merger include antitrust issues, this when Google already dominates the market overwhelmingly in internet search and online advertising.

Google had also placed calls to Yahoo to dissuade it from taking up Microsoft’s offer with offers of partnership between the two internet companies.

While all is fair in business, Google’s feelings of being threatened by the Microsoft-Yahoo merger has it acting disingenuously, going to the extent of it appealing to other companies like Time Warner to intervene with a counter offer to Yahoo and prevent a credible competition to it.

So while there isn’t much sympathy for Microsoft, Google’s actions does leave an unpleasant taste in the mouth and would only lose them credibility on being the team which is out to use technology to help others while differing from the bullying path that Microsoft has taken.

Is Microsoft going down the same road as the ill-fated AOL-Time Warner merger with its hostile takeover bid of Yahoo?

Microsoft has offered $44.6 billion in cash and stock to purchase Yahoo, or $31 a share, a 62 percent premium on Yahoo’s closing price on January 31.

Microsoft predicts that the merger would bring about efficiencies that would save around $1 billion annually. As it estimates that the value of online advertising will go up to $80 billion in the next three years, Microsoft is hoping to boost its share of that pie by capturing it together with Yahoo.

On paper, they seem like a good match – the world’s biggest software company hooking up with one of the largest internet media companies.

Both had been leaders in their respective fields but fell short in the online world when they ran up against the 1000-pound gorilla Google, especially Yahoo, as both itself and Microsoft have struggled to match Google’s dominance in capturing the internet search market and online advertising dollars.

The deal is a godsend for Yahoo shareholders.

The company’s shares surged after the news of the takeover offer. Yahoo is currently vulnerable, with its share prices down a third in the past year and recent announcements of slashing 1,000 jobs to cut costs, even as it offered a gloomy outlook for the rest of the year. Its chairman Terry Semel also stepped down in a shakeup, after being deposed of the chief executive position in June.

According to CNBC, Yahoo has over 500 million visitors at its range of media sites including Yahoo Mail, the world’s biggest e-mail service for consumers.

But analysts have justifiably been skeptical of the value of this bid for Microsoft, its most expensive to date.

Even if the deal goes through, many factors still point to the enormity of the work ahead for Microsoft.

For a a start, melding the two different cultures and technologies of both companies will be a huge hurdle for Microsoft.

As a sign of its worry that a brain drain would hemorrhage Yahoo if the deal is successful, Microsoft has tried to overcome the problem by offering generous retention packages to Yahoo engineers, key leaders and employees.

They would also have to sort out how to deal with their similar online services, from instant messaging and email, to news, sports and travel sites. Should they close down the MSN sites in favor of a Yahoo brand, or would there continue to be separate services?

More pertinently, Microsoft is paying a huge premium to be just number two in internet search behind Google and it does not make sense.

Estimates put Google’s share of the worldwide web search market at around 77 percent, while Yahoo is second with 16 percent and Microsoft a distant third with 3.7 percent. Combined, Microsoft-Yahoo would still be a distant second, with just around 20 per cent.

It is hard to see both of them being any more innovative to eat into Google’s dominance by much.

Microsoft-Yahoo would have about 20-24 per cent of the global search advertising market, an analyst at Oppenheimer told the Financial Times. The paper added that Google is estimated to have captured about 70 per cent of search advertising, which accounts for nearly 45 per cent of all online advertising.

Again, it is questionable if Microsoft-Yahoo can come up with new platforms that will steal substantial market share from Google, after Microsoft’s $6 billion purchase of online advertising company aQuantitive last May did not deliver profit to Microsoft’s online services division.

And why is it subjecting the merged entity to the possibility of facing anti-trust scrutiny, not just in the US but likely in Europe too?

The bottom line is, Microsoft and Steve Ballmer are desperate to be a factor on the internet. Despite having spent hundreds of millions to beef up its internet business, Microsoft’s efforts in the area is still not profitable. The FT said that Microsoft’s online services division, while only making up five per cent of Microsoft’s revenues, had been loss-making, to the tune of $510 million in the last half of 2007.

Yahoo’s board and shareholders should be smart enough to take the offer and run as the firm is in decline, but may yet try to extract a few more dollars out of Microsoft.

If the deal finalizes, it would be the largest in the internet market since the $182 billion purchase of Time Warner by AOL in 2001.

We know how that deal turned out. It has often been cited as one of the worst mergers in recent corporate history, as factors such as the incompatible corporate cultures of both companies and predicted synergies that did not occur caused the deal to sour, to the extent that Time Warner is looking to sell AOL.

So good luck Microsoft, looks like you would need it.