For anyone who doesn't follow Internet news very closely, I'll update you on an interesting web hosting story the is currently playing itself out. Microsoft is trying to buy Yahoo. The thing that is really difficult to understand is this: Yahoo doesn't want to sell.
This is a very important story to the web hosting industry because both of these players are pretty huge in hosting. Microsoft has developed an entire set of software and servers that only run under the Windows paradigm and then licenses that technology to web hosting companies. They have also dappled in hosting accounts directly, first with bCentral, and now with Office Live. Microsoft also practically owns business email software with Outlook and Exchange server. Yahoo on the other hand has stayed mainly in search, although the company made the decision to get into web hosting several years back - and has since been competing against its own advertisers (other web hosting companies that advertise on Yahoo or through Yahoo Search Marketing).
What's so puzzling is this: Yahoo was valued by the Wall Street at a total market cap of $25.7 billion before Microsoft's offer. The offer from Microsoft almost instantly boosted the market cap from $25.7 to $38 billion - an increase to all shareholders of $12.3 billion. So why on earth wouldn't Yahoo sell? Well, according to an open letter to Microsoft CEO Steve Ballmer reprinted in today's Wall Street Journal, Yahoo thinks that its three year projections are so rosy that Microsoft is undervaluing the company.
Huh?
So let me get this right - all the SUPER smart Wall Street analysts, hedge fund managers, mutual fund managers, and smaller investors were totally miscalculating the value of Yahoo before the offer? And now Microsoft - even though they are willing to pay a $12 billion premium over the market price - are STILL undervaluing the company?
No way.
If the growth plans of Yahoo are so great, shouldn't they be buying back their stock at what is effectively a BIG bargain? Shouldn't all those really smart Wall Street investors be buying it up as well?
The truth - though it hurts for Yahoo to hear it is this - they should immediately make a deal with Microsoft. If Yahoo is so certain that they are going to make a TON more money in the next three years, then they should make a deal that includes lots of Microsoft stock. That way, when the Yahoo piece of Microsoft outperforms, Microsoft stock will go up.
If this deal does get done, it will be interesting to see what Microsoft decides to do with the current Yahoo web hosting customers. It will also be interesting to see if Microsoft and Yahoo together can accomplish what they haven't been able to do separately: offer an impactful pay per click advertising alternative to Google for web hosting companies trying to attract new accounts.
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Comment by Anonymous on Thursday, April 10, 2008
Why is Microsoft so serious to buy Yahoo! what is that Microsoft expecting a value addition ? or is it that just to gain advantage over Google?