by: Carl Howe posted on: February 08, 2008 | about stocks: MSFT / YHOO    

MSFTextrememakeover has a nice financial analysis of the Microsoft-Yahoo (MSFT) (YHOO) deal suggesting that this hostile takeover bid is more ego than rational investment. Read the full analysis, but I think the conclusion is right on.

[From MSFTextrememakeover: Having Fun Yet?]

...there is no way that YHOO on paper is going to be worth this price. So at some future point, MSFT is going to have to take a huge charge to write down the "goodwill" difference between what they paid, versus what YHOO was actually worth. I guesstimate that that charge will be at least $1/share, and it could easily be $2 or more depending on what the final price is, how the integration goes, etc.. Needless to say, a $1-2 charge in some future fiscal will have the effect of wiping out a large part of MSFT's overall earnings for that entire year.

As I said in the last post, if you're a MSFT shareholder you should be hoping this deal gets kiboshed by either YHOO or regulators (however unlikely). Alternatively, you should hope that MSFT and YHOO come to some other accommodation. The best option there would be a standalone entity (either under the YHOO listing or a new one), into which both YHOO and MSFT contribute and MSFT shareholders get stock.

Putting on my Anywhere hat, I can understand Microsoft's need to buy a credible mobile content creator to be relevant to Anywhere consumers. But Microsoft's claiming that this deal makes sense is a bit like saying that I need to buy a $313,000 Lamborghini Murciélago to commute to work. I can understand the need, but the price really is over the top.

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