by Akionomics

Created on: February 24, 2008

Yahoo's board wanted more. On January 31, 2008, Microsoft made a bid for Yahoo for $44.6 billion, which equates to $31 per share. While many saw this as an opportunity, Yahoo executives saw an undervalued bid on what yahoo is potentially worth. While the price is certainly fair in terms of current market price, the value to Microsoft would be far more substantial. This would be the most ideal and fastest form of "attack" against Micosoft's online competitor, Google. Microsoft is known for their stockpile of capital, which gives Yahoo a heads up on how freely that capital can be transferred.

To give a visual landscape of what this deal could mean, the following shows the marketshare of Google, Microsoft, and Yahoo in the most pivotal segment.

Online advertising marketshare through the use of search engines:
Google 40%
Microsoft 18%
Yahoo 6%

Google's primary source of revenues comes from their online advertising through their searches. While they've made much headway in developing new technology, fronts, and investments, little has profited from those. If Microsoft acquires yahoo, it could gain a faster ground and take away the "ground" that supports Google's feet.

Not surprising, the world's major advertisers want the merger to happen so that they can have better deals from the tighter competition that is formed.

The yahoo's board of directors sees all of this and thus rejected the outrageous offer. Shareholders of yahoo were outraged believing that they were losing a good deal, causing them (Detroit pension funds) to sue the company for not looking towards the interests of the corporation. Meanwhile, Microsoft executive, Kevin Johnson continues to court yahoo with memos for them to go through with the merger.

The memo explained what would happen through the merger including whether or now anyone would be downsized, how the corporate culture would be maintained, and how the various products would be positioned. Yahoo is most likely bidding their time for a better deal to come through.

Google, obvious displeased, made a comment on how it was anticompetitive for the merger to take place. Unfortunately according to antitrust laws, the union would fall below the threshold permitting the buyout to occur. Google was not the only one concerned from the idea of a union. Some microsoft employees have voiced their opinions through their blogs suggesting that such actions would be a mistake.

Learn more about this author, Akionomics.
Click here to send this author comments or questions.