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Last updated: February 20, 2008 7:21 pm
Yahoo is starting to look more like Dow Jones by the day. Both are leaders in their field – the former as an internet portal, the latter in financial journalism. Both had fallen on tough times when a deep-pocketed predator (Microsoft and News Corporation respectively) lobbed in an aggressive offer at a roughly 60 per cent premium. In both cases, the implied valuation was extreme, and there were no obvious white knights to turn to. And now, it seems, Yahoo has taken the same route as Dow Jones in offering enhanced severance packages in case of lay-offs following a change of control.
Will the story end differently? With Dow Jones, the controlling Bancroft family was so disunited it managed to hand over the company without forcing a higher bid. Yahoo should do better. Most importantly, while Dow Jones was partly a vanity project for Rupert Murdoch, Microsoft needs Yahoo strategically. The deal is so risky in terms of integration, and fraught with anti-trust risks, that an outright hostile takeover, complete with bitter proxy fight, could leave Microsoft with a much weakened asset once it took control.
After all, this deal is not like Oracle’s hostile bid for PeopleSoft. That was all about buying a software maintenance revenue stream and cutting costs. Microsoft, in contrast, needs to nurture Yahoo’s expertise in building and retaining a huge internet audience, while adding to the mix its own technology prowess in order to take on Google.
Yahoo’s best defence, therefore, is making clear it will fight and that Microsoft would be better off paying a little more to secure a friendly deal. It originally bid $31 a share. The implied offer has slipped to about $29, as Microsoft’s stock has fallen. It would be odd for Yahoo’s board, having rejected the bid, simply to change its mind. But a sweetened offer at, say, $33 should do the trick.
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