What’s The Juice With Yahoo and Microsoft Lately? … For The Layperson, Part II
Action: Yahoo went looking for a “White Knight” to save them (all suitors listed below). They looked for a deal that would keep Yahoo in tact by either infusing cash or merging into a similar-sized company. They basically wanted a deal that didn’t involve Microsoft. However, after talks fizzled out for various reasons they decided to try and institute a defense plan. You’re probably asking yourself “how do you defend yourself from money?” Here’s the answer: by making yourself less valuable to potential suitors. So, they instituted a classic “Poison Pill” defense (a term used and coined by I-Bankers during the era of Wall Street raiders) by giving sizable pension boosts to employees and management in the case of a merger or acquisition. This essentially adds several billion to MSFTs costs if they want to proceed with the takeover.
The deal as it stands for MSFT:
Pros:
- Best of Class web properties (Yahoo, Flckr, Delicious, ect…).
- Chance to take out a long time competitor
- Good R&D
- A whole pipeline of products and services
- Top engineers
- An online presence they haven’t been able to achieve organically, even after very sizable MSN and Live campaigns.
- Save tons of money in operating costs with their new acquisition due to “synergies in operation” (ie. being able to fire everyone at Yahoo whose job already exists at Microsoft – management included).
Cons
- Have to pay for duplicate products (dozens of competing products need to be merged including Mail, IM and News)
- Big premium (40B+ is a sizable premium to pay on what Yahoo’s revenues are)
- A great deal of time/costs in combining operations from companies with very different cultures
- Layoff costs, especially after increase in pensions (“Poison Pill”)
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