Why Microsoft and Yahoo! merger can work
5-3-07: This morning there are confirmed reports that Yahoo! is being pursued by Microsoft (MSFT). Yahoo! is up about 17% percent on this news. To those of us who followed Yahoo, this does not come as a surprise. Rumors of Yahoo and MSFT merging have been around for over 2 years. This time we believed a deal is likely to happen as both companies must take drastic measures in order to capture a larger share of the online advertising market. Some analyst are saying the combination would not work because of cultural differences and etc.. However, here are some reasons why a merger could work:
- The combined search market share of Yahoo! and MSFT would be about approximately 45%. While this is still below Google, it would give the new company much better chance to compete with Google.
- Yahoo! declining profits and lack of consistent growth is concerning. If YHOO remains as an independently company, things could get worse as GOOG will continue to take away market share.
- Microsoft Search is sub par. After investing in their own search technology, MSFT has admitted the efforts have failed. To remain relevant in the search game, MSFT needs a company like Yahoo!.
- Microsoft and Yahoo! have been working together on many different projects (such as instant messages and others). Once combined, they could also integrate/collaborate on other strategic projects, eliminating substantial cost.
- Utilizing the monopoly power of Microsoft operating systems combined with Yahoo! page views and popularity, the combined company will make things tougher for Google.
- A deal where MSFT would merge their search division with Yahoo!, but leaving Yahoo! as a separate entity could make a lot of sense.
Comments
I don't think it will happen. Even if we want them too, Jerry Yang won't allow that. Selling it and buying back
Posted by: Ron Mexico | May 4, 2007 02:16 PM
Interesting day for YHOO. Lack of outright denial by either party along with non-denial denial (talks are "not currently active") makes me feel that YHOO is indeed in play and that people who bought early in the day were fooled into giving up their shares to the smart money later in the trading session. Right now I don't think you can believe anything regarding whether a deal is in the works or not. This will only happen when MSFT or YHOO says "yes" or "no" about negotiations taking place. However, what is clear is that when the "not currently active" information came out the stock did not collapse back to pre-rumor levels. In other words, the market is not convinced that these companies aren't in talks. Monday will indeed be interesting. I don't know much about the cultures of each of these companies but what is clear to everyone is that efforts to compete with GOOG aren't going anywhere and something new has to be considered. Remember, for YHOO the enemy of my enemy is my friend.
More later.
Posted by: Stock Detective | May 4, 2007 04:54 PM