Two more articles that I liked - I have highlighted a couple of items, but it is very much worth reading the full articles:
Yahoo Board to Decide Fate of Company Today
Sources have indicated to us that Yahoo has scheduled a special board of directors meeting on Friday to determine, effectively, the fate of the company. After a week of hectic negotiating, it’s clear that no one is going to step in with a competing acquisition offer to what Microsoft put on the table last Friday - $31 per share. Softbank, the last real chance for a competing bid, bowed out today and said they would not be challenging the Microsoft offer.
There are only two options left. Accept the offer in principal, and try to increase the price with no negotiating leverage at all, or do a deal with Google to outsource search advertising and, likely, search itself.
A Google Deal - Short Term Independence/Long Term Nightmare
If Yahoo were to outsource search to Google, the immediate upside would be 25% or so to Yahoo’s cash flow in the form of increased revenues (revenue per search query would likely jump to 9 cents from 4 cents today), and cost savings from operations (servers) and headcount reduction. That may add $7 billion or so in immediate valuation, or around $5 per share, say some experts we’ve talked to (less than half the premium Microsoft is offering).
Nearly a third of Yahoo employees would be shown the door, though. Estimates are that Yahoo employees 1,500 or so people in each of search, the search advertising platform, and advertising sales and operations. All of those employees would likely be fired, unless Yahoo chose to retain its core algorithmic search product. Experts say, however, that good search and the ad platform go hand in hand. Without data from the search advertising side of the business, search itself is hobbled. It’s likely, therefore, that Yahoo would shed all of those jobs to and simply outsource all of search and search marketing to Google. Yahoo has a little over 13,000 employees today (taking into account the recently announced layoffs) - so nearly 1 in every 3 would leave.
Get ready for Microsoft/Yahoo. It’s happening.
Yahoo Board to Decide Fate of Company Today - Seeking Alpha
How Much Leverage Does Yahoo! Really Have? Ask Overture
A lot of interesting observations and analysis coming out about Microhoogate. The general theme du jour was that Microsoft’s offer for Yahoo! was less enticing yesterday than it was a week ago when it offered $31/share to acquire Yahoo!.
- Outsourcing search to Google only strengthens’ Google’s hand. Yang’s emotions are blinding him from this little fact: it is Google, and not MSFT, that is Yahoo!’s main competition, both operationally as a company and financially as a stock competing for institutional and individual shareholder demand.
- Selling to private equity is looking like a no-go. The credit markets remain spooked and few, if anyone, can justify the cost and revenue efficiencies to pull it off.
- NBC has passed, as a partner to MSN, they welcome the influx of new eyeballs.
- AOL can’t budge, as Time Warner (TWX) is itself undergoing some soul searching.
- News Corp.’s (NWS) done the math? Think again, it has a guaranteed $900M positive cash flow stream from Google, why replace that with a negative $45B outflow in an acquisition of Yahoo!?
The point is, when push comes to shove, Steve Ballmer will get on the phones again, and tell Jerry Yang exactly what Yahoo! told Overture when it made an offer that Overture could not resist.
Back in the day, Overture had very little leverage as a provider of paid text links with no distribution. Overture - formerly GoTo.com - was approached by Yahoo! about a sale. Overture initially rebuffed, even asked for more money, but ultimately, Yahoo! (GoTo.com’s largest distributor) threatened to pull a MSFT/Looksmart.
If I were Jerry Yang, I’d go back to Steve Ballmer and graciously thank him for his interest in the company he and David Filo founded. I’d also show a desire to bring Yahoo! back to a competitive level that we have not seen since the Y2K bug was a business threat to Yahoo! and MSFT, but ultimately, I’d ask for $50B buyout price and a commitment to maintain Yahoo! as an independent operating unit that reports to MSFT.
How Much Leverage Does Yahoo! Really Have? Ask Overture - Seeking Alpha
Fri, Feb 8 2008 12:09 PM