As rumored in our recent newsletter “Is Yahoo a Buying Opportunity” Microsoft this morning has made a bid to acquire Yahoo at a 64% premium to Thursday’s closing stock price to represent a $44.6 BILLION value, which is projected to be over a 30X EBITA multiple offer on projected 2008 earnings. Microsoft will allow Yahoo investors to accept stock or cash. Many expected that with the stock price now so low and recent layoffs that Microsoft would not be interested in the company, but as rumored by sources deep inside Yahoo, there is significant history between Yahoo and Microsoft.
Terry Semel, former CEO of Yahoo, and Microsoft entered talks in late 2006 and continued to discuss an acquisition until Feb 2nd, 2007 when a letter was sent by Semel to Microsoft explaining that Yahoo didn’t feel it was the right move at this time. Analysts speculate that Yahoo saw more potential value than was being offered at that time. With Semel out and Jerry Yang in things changed. With the current battering of the price to as low as $18 a share, Microsoft has aggressively moved in an pulled a Murdoch by offering a premium price that is unlikely to be challenged by another. Some sources say that the bid could go as high as $40 a share.
Yahoo has had a tough year in 2007 with slipping search share, drastic loss of senior management, declining profits, and media attention focused on praising Google. It has made some bold moves in paying high acquisition premiums such as Right Media in order to stimulate change and growth inside the organization. However the stock price continued to slide and broke the $20 barrier last week.
Adotas will keep you updated on the unfolding events related to the acquisition as the day moves on.