Friday, May 04, 2007

Microhoo. A Microsoft and Yahoo Combination

The press caught early wind of more talks between the #2 and #3 players in search, Yahoo and Microsoft/MSN, respectively.

As a result, Yahoo shares surged 18% from $28 to $33 at the opening bell. It was the big news story on CNBC this morning. $50 billion has been thrown out there as a purchase price which to me sounds a bit rich based on today's current valuation and based on Yahoo management's most recent performance outlook.

I am guessing this deal will not happen ... setting financing aside, I think there's pretty huge integration risk. Yahoo is not the dinky startup with 10-15 employees that Microsoft typically absorbs into its amoeba-ish structure. The consumption of Yahoo seems simply way too big for Microsoft's stomach.

A key question ... do the potential synergies (likelihood of increased market share) created from the combined search orgs overcome the integration risk? What I am saying is that after you risk-adjust those synergies, are they still there?

I'm no post merger integration expert by any means but the task just seems too daunting. Too many things can go wrong - talent exodus, differing technology platforms, culture, misaligned strategies, et al.

Will be interesting to see what falls out in the next few weeks.

Update: 4 pm PST 4/4/07. It appears the WSJ has confirmed no substantial talks are taking place regarding the takeover.

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