Microsoft Finally Makes Its Move on Yahoo

For all the reasons a Microsoft acquisition of Yahoo! doesn’t make sense, one factor trumped them all: a bargain. Early this morning, Microsoft made an unsolicited bid for the Internet pioneer for $31 a share, 62% higher than Yahoo’s closing price of $19.18 yesterday. Yahoo’s stock has fallen far enough that, even though Microsoft is offering $44.6 billion for a company the market valued at only about $25 billion (until now—the stock’s up about 50% this morning, for a market cap of $38 billion), it was too much of a steal to pass up.

At such a premium, which likely will go higher, it would seem that Yahoo would be hard-pressed to turn down such a deal—even though the company surely preferred not to sell at this time. If it goes through, we suddenly have a two-horse race on the Net, with Microsoft-Yahoo the one force with a chance to slow down search giant Google.

But what a messy combination this will be, for months and even years to come. Maybe Yahoo is just too compelling a property for Microsoft, perennially struggling to stem the Google tide, to pass up. Clearly, Yahoo hasn’t managed to get its act together fast enough. But neither has Microsoft—even less so vs. Google than Yahoo.

And putting together two huge organizations like this is going to slow both down for a long time, while the Google juggernaut merrily barrels down the road, more focused than its competitor. What’s more, big tech mergers often don’t work. Even less often do hostile takeovers work. Put them together, and the results won’t be pretty. Yahoo has already been losing lots of people, and while some may welcome the relative stability of Microsoft, I’m not sure it’s those people who will be the most valuable going forward. Google, Facebook, and a raft of startups will have even sweeter pickings among restless Yahoos.

In the long run, if the deal happens and Microsoft manages to recharge growth in Yahoo properties—which after all collectively are still the main place most people on the Net go—a formidable force may emerge. But for the foreseeable future, Google rules.

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