Yahoo and Microsoft – the Lessons Investors Should Learn
May 7th, 2008 | By Ben Traynor | Category: International Investing“So! Microsoft’s Yahoo bid fell through. What are your thoughts?” This was how I greeted our research director Theo when I let him into the office this morning he’d forgotten the door code again.
“Give me a chance to get my coat off!” came the reply.
One de-coating and a cup of tea later, and Theo was buzzing.
“Jerry Yang just pushed his luck,” he said, referring to Yahoo’s chief executive. “Microsoft were bidding $33 a share; Yang and his board wanted $37. No dice!”
Let’s not forget, before the bid started Yahoo’s share price was below $20. The troubled courtship with Microsoft has served Yahoo shareholders well.
But yesterday the share price took a tumble when the deal looked to be dead. There’s an important lesson investors can draw from all this. It shows how a cantankerous CEO can sometimes turn down a good deal on your behalf.
Now the deal looks like it might go ahead after all. Yang is under pressure from his ultimate bosses – the shareholders. They want to know what plans he has to get the shares from where they currently are – around $25 – to the $33 they would have pocketed from Microsoft.
Theo also points out the contrast with the M&A frenzy of the last few years. When credit was cheap, speculative investors would load up on potential merger and acquisition targets, hoping to bag a nice premium from the predator firm. It was risky, but the potential rewards were worth it (witness the huge premium Royal Bank of Scotland paid for ABN Amro).
If one deal fell through, there was always a reasonable chance someone else would take the suitor’s place. But that was all pre-credit crunch. Yahoo’s share price tumble yesterday showed that such optimism has evaporated from the markets.
“This sort of M&A play is too risky now,” says Theo. “And that goes for Yahoo as well. Stay away!”
I would have gotten away with it if it wasn’t for that pesky Frank Field!
Labour rebelmeister, Frank Field, is brandishing his trouble-making stick again. Get ready for round two of the 10p tax fight!
Gordon Brown must just wish this issue would go away. It was Brown who, as Chancellor last year, got rid of the rate (a move he must surely now rue). Now, as Prime Minister, he’s presiding over the farcical consequences.
It’s estimated that the change will leave 5.3 million people worse-off (incidentally Gordon the Stubborn is disputing this figure, even though both the Treasury and the Institute for Fiscal Studies have confirmed it).
The Government faced down a backbench revolt by promising to ensure the worst-affected were compensated. Alistair Darling promised to make it all good again. This placated the rebels… for about a week. Now they’ve returned to ask the inevitable question: “Hang on… what are you actually going to do?”
Ah, there’s the rub. Brown says precise measures have been announced. But the message doesn’t seem to have reached his own party. Field and other MPs are baffled by the assertion.
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Field is tabling a motion to demand a progress report from the Treasury. He wants to know who will be covered, whether or not payments will be backdated and what exactly will be the mechanism by which people are compensated.Those pesky details! “We’ll make it all OK!” said the Government. It sounded really good. Why does Field have to go and spoil it by asking questions?Perhaps most damaging will be Field’s demand that the Treasury publish data on households that have lost out.”The Government is desperately trying to save face,” says our resident angry man Frank Hemsley. “This is tantamount to asking them to quantify exactly how much face they have, and haven’t, saved.”
And how bad will it look if the Treasury refuses to publish this data.
Brown and Darling are like schoolboys who haven’t done their homework (though, as noted above, Brown insists he has). Now they’re being asked to show teacher their sums…
It’s all just so embarrassing, isn’t it?
