Interesting news development: YHOO/MSFT/GOOG deals

Interesting news development: YHOO/MSFT/GOOG deals

Microsoft Reaffirms Lack of Commitment to Yahoo
Posted at 2:05 PM PT on July 1, 2008

Jerry Yang and Co. say Microsoft (MSFT) was never committed to a whole-company acquisition of Yahoo (YHOO). But if that’s the case, why is it that Microsoft seems entirely committed to a whole-company acquisition of another search company–Powerset?
This afternoon, Microsoft said it will acquire the search start-up for a sum believed to be more than $100 million.

Coming as it does in the aftermath of Microsoft’s failed effort to buy Yahoo, the acquisition is an interesting one. Powerset is no Yahoo. That said, it’s in some ways better.

Powerset specializes in so-called “natural language” search, which is meant to understand the intent and meaning behind the words in search queries–so that, for example, a search engine could understand the difference between a search for “yahoo” the exclamation, and “Yahoo” the search company Microsoft didn’t buy. Powerset searches the Web–well, at this point, just Wikipedia–semantically. And that’s a handy skill to have when your competing with Google (GOOG), which isn’t yet able to search the Web in that way.

Said Harvard Business School professor Andrei Hagiu, “Microsoft’s acquisition of Powerset makes perfect sense and is probably the best shot at a disruptive technology that might allow it to leapfrog Google.”

Yahoo Fights for Its Board, Defends Handling of Microsoft Deal, and Says Google Is Better Partner
Posted Jun 30, 2008 02:52pm EDT by Joseph Weisenthal in Investing, Internet, Venture Capital, M and A, IPOs

Related: yhoo, goog, msft
From paidContent.org, June 30, 2008:

As Yahoo prepares for its Aug. 1 board election, the company is once again repeating an argument: It handled the Microsoft negotiations as best it could, and the new deal with Google is better than any partial one with Microsoft. As for Carl Icahn, Yahoo is taking the opportunity to trash his track record. The presentation can be seen in a 32-page slideshow filed with the SEC. A concise summary can be found in a separate release.

Some key highlights:

-- The company lays out the Microsoft time line on slide 6, and it clarifies that it asked the company twice, on May 17 and June 8 whether it was still interested in doing a full acquisition. Microsoft said no, not even at the previous price that it had offered. Following that, Yahoo argues that Microsoft was inconsistent between its public and private statements and that that casts doubt on whether the company was ever interested in a full acquisition.

-- Next they turn to the much-talked about partial search deal with Microsoft, and why it was a bad deal. Among the arguments: the $1 billion upfront payment for the company’s search assets would’ve been taxable and that the separation would have been too complex. It also states that Microsoft would have paid Yahoo TAC of 70 percent of net search revenues, and that this split was too low. Bottom line: Microsoft’s expectations for cost savings and revenue benefit were too optimistic, so there’d be no meaningful improvement in Yahoo’s operating cash flow. Additionally, it would have given Microsoft too much power, namely the ability to veto any other change in control. The full bill of issues can be found starting on slide 10.

-- As for the Google deal, the supposed benefits are well known at this point: flexibility, non-exclusivity, increased cash flow, etc. (Slide 15)

-- How Yahoo plans to execute and grow as an independent company is arguably the most important part of all this. The gist: Yahoo has tons of users, and it remains a must buy. It continues to rack up new ad partnership, and it’s now in a better position than ever to monetize these assets. On slide 19, Yahoo talks up its recent reorg, claiming it will improve product execution, reinforce P&L accountability, and position themselves better for the convergence of search and display.

-- Once again, Yahoo defends its severance plan: It wouldn’t cost $2.4 billion, and it’s not about thwarting a deal. It’s all about retaining employees.

-- On Icahn: Yahoo wants you to forget all that “legendary” investor stuff. On slide 28, it lays out the performance of companies that he’s gotten involved with, and how they’ve done. It’s mainly a bunch of red ink and down arrows, though you can decide for yourself if this just means he targets companies that are performing badly.

AP
Yahoo shares fall to lowest level since January
Tuesday July 1, 2:09 pm ET
By Rachel Metz, AP Business Writer 

Yahoo shares decline to lowest level since before Microsoft bid

NEW YORK (AP) -- Shares of Yahoo Inc. fell on Tuesday to their lowest level since late January, right before Microsoft Corp. attempted to buy the struggling Internet icon in an unsolicited offer that was later rejected.

Yahoo shares declined 52 cents, or 2.5 percent, to $20.14, after earlier trading as low as $19.59. The stock has traded between $18.58 and $34.08 in the past year, hitting the low end of that range on Jan. 30, just before Microsoft Corp.'s initial bid was announced Feb. 1.

Microsoft withdrew its $47.5 billion offer for the company in May, and Yahoo announced shortly thereafter that it reached an advertising deal with rival Google Inc.

Yahoo's rejection of the bid angered many Yahoo shareholders, including activist investor Carl Icahn, who is now agitating for replacing the company's directors and restarting negotiations with Microsoft.

On Monday, Yahoo began working on major shareholders, trying to convince them the board and management deserve a chance to show they were right by rejecting Microsoft's bid.

Shareholders will get to express their opinion when they vote Aug. 1 on the future make up of the board at the company's annual meeting.

Adding to its troubles, several executives have recently departed Yahoo.

In a phone interview Tuesday, Cowen & Co. analyst Jim Friedland said he doesn't think the stock's drop was related to Yahoo's current issues.

The stock's Tuesday performance "has less to do with Yahoo and more to do with the overall performance of the stock market and the Internet sector," said Friedland, who rates the stock "Neutral."

The tech sector and overall market declined Tuesday as well, amid rising oil prices and a disappointing manufacturing report.

Friedland said that if the market viewed Yahoo as a $19 stock, plus or minus, before the premium was built in for the possibility of an acquisition by Microsoft, and it's no longer likely that the deal will occur, "there's no reason why it shouldn't trade where it was trading before that announcement came out."

Also Tuesday, Standard & Poor's equity analyst Scott Kessler raised his rating for Yahoo's stock to "Buy" from "Hold" due to its valuation.

In a note to clients, Kessler noted that the stock has fallen about 33 percent since the day before Microsoft withdrew its bid.

Kessler said he is "well aware of Yahoo's troubles" but kept his $27 price target, saying he thinks "risk-reward considerations are favorable."