Microsoft bid for Yahoo

Microsoft’s bid for Yahoo

The biggest buzz around the search engine world recently has been the Microsoft’s unsolicited offer of $44.6 billion to takeover Internet icon Yahoo Inc. Although the offer was rejected by Yahoo claiming that “Microsoft’s offer substantially undervalues Yahoo and is therefore not in the best interest of the company”, Yahoo has still left the door open for revised Microsoft bid.

This development raises a very pertinent question in everyone’s mind that what prompted Microsoft to make such an offer? The answer lies in the ever growing lucrative online search and advertising markets.

Today, the online search and advertising business is witnessing an unprecedented growth. In this scenario, every online market player is vying to capture the largest market chunk. However, the online market today is completely dominated by Google Inc. To effectively challenge Google’s dominance, Microsoft is looking to overtake Yahoo which is a leading online advertising and Internet search provider. From Microsoft’s point of view, the combination will scale economics driven by audience critical mass and will provide increased value for advertisers. In the field of research and development, the combined engineering talent will accelerate innovation, especially innovation in emerging user experience such as video and mobile. It will also increase operational efficiencies through elimination of redundant cost and will generate profit worth $1 billion per anum.

Yahoo’s Bid Rejection 

Although the rejection of offer by Yahoo has put a temporary brake on Microsoft’s ambition,  taking different factors in account, the deal does seem feasible in the near future.

In the press release on the eve of rejection of the Microsoft offer, Yahoo explicitly pointed out that a transaction with Microsoft is still an option, but only if they are willing to pay a price that fully recognises the value of Yahoo. The other factor that points the same is the present worth of Yahoo. The present market value of Yahoo is around $25.6 billion, while the offered amount of Microsoft is $44.6 billion. This means, the shareholder’s each share would be worth $31 in comparison to its present worth of $19.18. In this situation, Yahoo has to face the shareholders pressure to go for the deal. Even Yahoo is afraid of the fact that Microsoft can make an offer directly to the share holders which could be a very difficult situation for Yahoo.

This bid is a sensible move by Microsoft from the point of view of strategic survival. Seeing the slump in its business, its best option is to combine with Yahoo to create the dominant No. 2 position in online advertising and Internet search. Even from the Yahoo’s point of view, it’s a favourable proposition for them. The recent rejection of Microsoft’s offer by Yahoo seems more of a move to bargain some more
prices and it’s just a matter of time before Microsoft succeed in their bid.

The question is - Why don’t Google simply just jump in and beat Microsoft’s offer - $45 billion would hardly make a dent in their bank account!

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