Mergers & Acquisitions: Microsoft and Yahoo
Since the middle of 2005, software giant Microsoft has made attempts to purchase Internet portal Yahoo. Over the past year and a half, the merger has taken on an on-again/off-again character. That the merger talk will not fade away speaks to the perceived benefits of the merger, for Microsoft in particular. There are substantial strategic gains to be made for Microsoft. The software specialist has tried to establish itself as a leading portal, but has not achieved the success of portal giants Yahoo and Google. The possibility exists that the traditional software industry could undergo a radical change in coming years as traditional computer technology becomes ever more portable. For Microsoft, this raises the specter that while the Internet is unlikely to change, the methods and technologies that people use to interact with it may change, to Microsoft's detriment. This provides Microsoft with the strategic impetus for merger.From the perspective of Yahoo shareholders, the deal has thus far been less than enticing. Traditionally, the purchasing company pays a significant premium over the current market value in order to acquire the target. In this case, Microsoft, spurned after years of negotiations for a friendly take
Microsoft shareholders would still lose with a new Yahoo merger, but they would not lose nearly as much as if the deal had been made early this year. In short, there are as many reasons to believe that a Microsoft purchase of Yahoo will not add value as there are reasons to believe that it will. The combined entity would still be significantly than the leading portal Google. Yahoo has maintained strong liquidity despite the struggles. Since that initial offer, Yahoo shares have plummeted amidst lousy financials and the economic downturn. One is that there are potential cost reductions from the elimination of redundancies between the two companies. The company would pay a premium for a declining business. By combining the knowledge and experience of these two large, successful companies, further opportunities can be expected to emerge, further driving revenues for the combined entity. In 2005 Yahoo recorded a net income of $1. The Internet is has more stable long-run prospects than the technology used to access it. There is no guarantee, however, that the combined will work. The value of Yahoo stock had eroded significantly to that point, losing half its value in the previous two years. The combined Yahoo/Microsoft entity might be more profitable for several reasons.
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