Microsoft Not Down on Poor Yahoo Performance

    February 1, 2008

Well, maybe there’s some good news to come out of Yahoo’s recent poor financial performance after all–Microsoft wants to buy it for $44.6 billion.

Nobody really saw this coming–you can’t count general speculation–so it will be interesting to see how this plays out. Microsoft offered $31 per share in cash and stock, representing a 62% premium on Yahoo’s recent stock price.

As AP reports:

Under terms of the proposed deal, Yahoo shareholders could choose to receive cash or Microsoft common shares, with the total purchase consisting of 50 percent each cash and stock.

Microsoft said it sees at least $1 billion cost savings generated by the merger, and intends to offer significant retention packages to Yahoo engineers, key leaders and employees. The software giant said it believes the takeover would receive regulatory clearance and close in the second half of 2008.

Now here’s the thing. This could become a hostile takeover very quickly. Microsoft CEO Steve Ballmer is already taking shots at Jerry Yang et al’s attempts to revitalize the company, saying “A year has gone by, and the competitive situation has not improved.”

Microsoft also predicts Yahoo’s board will turn down the offer. The Redmond software company is already trying to influence Yahoo’s stock holders by saying it “reserves the right to pursue all necessary steps to ensure that Yahoo’s shareholders are provided with the opportunity to realize the value inherent in our proposal.”

This really is the case of deciding which is the lesser of two evils here. I can understand why Yahoo might not want to join the ranks of Microsoft, but on the other hand, the company continues to struggle and there are few suitors that could make such a generous offer.

On the other side of the equation. Will buying a company that has failed to stand up to Google in any way, help Microsoft–which has equally poor performance. Do two losers, make a winner?