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Advertising - Friday, May 4, 2007

MiYahoo! Would Be Lousy For The Venture Economy

Here is our roundup of pundit opinions on the rumored $50B MSN + Yahoo! merger, but first our opinion. The a:c hates the potential merger as it would dry up the outstanding M&A environment that we are currently enjoying an outstanding cycle where any online ad company has the potential to potentially be acquired or partner with Microsoft, Google, or Yahoo. Two of those combine and you your choices collapse substantially. Because the three have appeared so desperate to out-play each other they are doing deals at any costs just to block their rivals. Should MSN and Yahoo merge, competition will of course be fierce but there is likely to be more inward looking focus on how to make the parts they already have work better.

Ed Sim
"On the positive side, a combined Microsoft-Yahoo would hopefully give startups another real alternative to Google Adsense as the combined entity would have real scale like Google and therefore the ability to deliver Google like results. On the negative side, a combination would mean that there is one less aggressive acquirer on the market."

Bank of America
Bank of America likes the deal for Microsoft but says the $50B price cited by the NY Post is a lowball number. B of A suggests the price range for Yahoo would be $42-$52 a share, or $51B - $66B.

B of A says the deal might face regulatory liabilities especially in the EU.

UBS
UBS has two analysts with opinions here. Heather Bellini says that buying Yahoo would “improve Microsoft’s position dramatically as well as alter the competitive dynamics of the search industry.” But she contents that acquiring Yahoo could create “potentially unmanageable risks” for Microsoft. Attempts to integrate Microsoft’s advertising platform with Yahoo’s could falter and yet more key employees might leave. Given that, Bellini says a partnership, as opposed to a merger, between Microsoft and Yahoo could be a better plan.

The other analyst, Benjamin Schachter, holds that the pricing of Yahoo would be similar to Google’s acquisition of DoubleClick or Yahoo's buyout or Right Media.
"We do not expect multiples and DCF to be primary determinants of potential price. Scarcity value, synergies, defensive positioning and competitive bidding (e.g., keeping it away from competitors) will drive price.”

+ MSN/Yahoo would hold 38% of U.S. search shares vs. Google's 48% and rising.
+ MSN/Yahoo would have 27% worldwide share vs. Google's 66%
+ MSN/Yahoo would enjoy 12% of U.S. page views vs. Google' 3%
+ MSN/Yahoo would take 19% of total US Internet minutes vs. Google's 3%

Henry Blodget
Blodget likes the deal, but only if Microsoft would spin of MSN/Yahoo as a separate company. He makes some strong points that the operating unit would always be the little man on the Microsoft campus, plus it would have hard time recruiting and retaining talent given that no valuable stock options would be on hand. Indeed, the Wall Street Journal suggested that Microsoft could go for a smaller deal, spinning its online group into Yahoo in return for a stake in Yahoo.

Hipmojo
May have preceded Blodget in suggesting the independent company idea. Hipmojo is now wondering if owners of Yahoo shares should cash in at this high point. If the deal is a go, it sounds like Yahoo shareholders should hold down the fort a while longer.

Paul Kedrosky
"Some people are saying that Microsoft needs to spin out its 'Internet' business and combine that with Yahoo. Newsflash folks: This is 2007, every technology/software business is an Internet business. If you want to make the argument that MSFT needs to carve out media and advertising then make it, but don’t conflate media/ad with Internet and pretend the latter still remains a distinct category, because it doesn’t. Pretending there are are Internet and non-Internet aspects to a tech company like Microsoft is like pretending you can have peeing and non-peeing sections in a swimming pool. It doesn’t work." Read it.

Canaccord Capital
"It may take Microsoft a decade and tens of billions of dollars to catch Google with internal development. Their only other real choice to catapult into a really competitive position is either to buy five to 10 smaller companies or buy something like Yahoo. There is a 60 percent to 70 percent chance a deal will happen in six to nine months. Once Google bought DoubleClick the ability for Microsoft to build via smaller pieces a viable competitor to Google disappeared."

Theodoor Gilissen
"There is without a doubt business logic behind this, though it all depends on the price and the returns. Even for Microsoft, Yahoo's market value is no pocket money.''

Mary Jo Foley (ZDNet Microsoft Watcher)
Terry Semel will be a key note speaker next week at MSN's annual event on online advertising (Microsoft's eighth annual Strategic Account Summit). Other outside speakers are AdMob's CEO and rocker Chris Cornell who is doing the after event party.

Scott Rosenberg
Rosenberg prides himself as being against the AOL/Time Warner merger when it was announced and see more of the same here: "Acquisitions at this scale virtually never lead to useful combinations, strategic synergies, or anything else of use. They are financial engineering. What’s happening with this one is pretty simple: Microsoft and Yahoo have both found themselves at dead ends, but they both have formidable assets, and their leaderships are acting out of desperation. Microsoft can’t build a successful search engine, Yahoo can’t gain traction against Google, and each may think the other can solve its problems."

Robert Scoble
"It’s funny that Microsoft could end up paying a LOT more for Flickr and Del.icio.us than it would have paid if they had bought those when I told Gates to buy those. Sigh."

Rich Skrenta
"I felt kind of sad, because msft and yahoo aren't really standing in the way of anyone else succeeding right now. In fact they're struggling hard to compete themselves, trying their best... and then this comes along. Anyone who has worked in a bigco knows what this nonsense does to productivity. Imagine every single one of your employees spending hours today talking about this. Well it's Friday at least. But they'll keep talking about it on Monday..."

NY Times Dealbook
"In an interview with the New Yorker last year, Mr. Semel, a former film industry executive, swatted down the idea that Yahoo had considered an outright sale to Microsoft. Instead, he said that they tossed around the notion of Microsoft buying a stake in Yahoo’s search business — a transaction that he compared to an amputation."