Tuesday, February 12, 2008

Yahoo! Nohoo! More Cashoo!


In all of the Microsoft-Yahoo talk so far, no official deadlines have been given.  There may be an implicit hurry-up factor, however, as it seems that Microsoft's sinking stock price could force it to adjust the deal.
The offer of $44.6 billion was made back when Microsoft was worth around $33.60 per share.  But since it was actually a half-cash, half-stock offer, and Microsoft is now at $29.07 per share, the grand total is now closer to $41 billion.
Yahoo's leaders and stockholders may not like the idea of over $3 billion vanishing in a week's time.  Also, it's quite possible that (independent of these dealings) even more money will disappear from the table as the days go by; remember, the Dow lost 370 points yesterday.  All of which leads us to what Henry Blodget discussed.
". . . Yahoo shareholders will insist on receiving at least what Microsoft offered initially - $31 per share.  If Microsoft wants to maintain its half-stock / half-cash mix, therefore, it will have to adjust the share exchange rate to account for the reduced value of Microsoft's shares," he writes.
Blodget then continues, "By adjusting the exchange rate, however, Microsoft will increase the dilution suffered by Microsoft's existing shareholders, which will likely make them even more unhappy with the deal.  As Microsoft's shareholders begin to appreciate this possibility, they might sell more stock, driving the price down further.  And so on."
When the Microsoft-Yahoo interaction began, only one of the two companies was in questionable shape.  But if this goes on much longer, the situation may very well change.

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