Yahoo!/Microsoft! merger! talks! fail! (and game over)

Mercy! It's Monday's IT Blogwatch: in which Microsoft is merging with Yahoo! Isn't. Is. Isn't. Is too. Not to mention what happens when Mario leaves the Mushroom Kingdom and returns to Brooklyn as a mushroom addict deadbeat plumber...

John Blau reports::

Reports that Microsoft Corp. and Yahoo Inc. are in talks over a possible acquisition or merger have come as anything but a surprise to analysts who question not if, but when, a deal will happen. Microsoft and Yahoo, which have held informal merger talks in the past, are at the negotiating table again, driven largely by the rising dominance of Google Inc. in the online advertising market

...

The possible early-stage negotiations over an acquisition, a merger or some other type of deal come on the heels of Google's move last month to snatch up online advertising powerhouse DoubleClick Inc. for $3.1 billion.

Henry Blodget blodgs:

Would it be a smart strategic move for Microsoft and Yahoo to combine forces?  Absolutely.  Is the best way to do this to have Microsoft suck Yahoo into the massive Windows/Office borg?  Absolutely not.  If Microsoft buys Yahoo, Microsoft should immediately spin the Yahoo-MSN business out as a separate company.  If it doesn't, both Yahoo and MSN will die.

...

If Microsoft spun out Yahoo-MSN, the company would be able to recruit the best talent, run it's own show, and, if necessary, compete with Microsoft (which it would never be able to do freely as a division) ... Alas, this sensible solution seems unlikely...because ego will get in the way.

But Nicholas Carr disagrees:

That not only seems unlikely (as Blodget notes), but would also undermine the long-term rationale of a merger. For players like Google, Microsoft, and Yahoo, content and services - the media business and the software business - are becoming inextricably intertwined, all the way from the underlying data-center infrastructure to the point of consumption. Microsoft has come to believe, for instance, that advertising will be central to the software business in the future. It's not going to spin off its ad networks or search functions.

Nevertheless, the odds against such a merger paying off are high. But maybe Microsoft, despite downplaying its rivalry with Google, is starting to feel desperate. And maybe Yahoo is, too ... Buying Yahoo would represent a hugely risky bet for Microsoft, as both companies have been struggling with the management of their internet businesses, losing search and advertising share to Google. Combining two weak performers rarely produces a strong performer.

Scott Rosenberg has déjà vu all over again:

[This is] one of the financial markets’ combination-mad moments — these merger frenzies often arrive at a market peak. Remember January 2000? We woke up one morning ... to discover that Time Warner was buying AOL ... We know how that one played out. Acquisitions at this scale virtually never lead to useful combinations, strategic synergies, or anything else of use. They are financial engineering.

What’s happening with this one is pretty simple: Microsoft and Yahoo have both found themselves at dead ends, but they both have formidable assets, and their leaderships are acting out of desperation. Microsoft can’t build a successful search engine, Yahoo can’t gain traction against Google, and each may think the other can solve its problems. In the event of a deal we will probably hear, as we did with Time Warner/AOL, that it’s a merger, not an acquisition, but don’t be fooled: Microsoft has the extra billions here.

Whoa there! Hold your horses, says Om Malik:

So much for the Goldman Sachs’ arranged marriage of Yahoo and Microsoft. It didn’t even merit an episode on Blind Date! ... [it's] not happening. They had talked, briefly - like answering a Match.com profile with a cut-n-paste email - but there is nothing going on. From a Yahoo perspective, it is actually a good thing - it has only one way to go - up. The better they can execute, the better chances they have to be a solid #2. And nothing wrong with that.

I think if you look at all of recent moves by Google, it shows it wants to be Yahoo (except in the slow-lumbering ways Yahoo works). It wants to sell banner ads, it wants to build your home page… on and on. They may not be the #1 brand on the planet, but then there are people outside of the Silicon Valley-Wall Street hothouse, who love their products. For instance our moms and sisters.

If only Yahoo realizes that, and starts to feel a bit more confident about itself, it will soon realize that it ain’t no Microsoft. And that’s a good thing.

Larry Dignan seeks the truth:

Earlier Friday, I had asked whether this Yahoo-Microsoft chatter was for real this time. Guess we got our answer: NO. Now that doesn't mean a deal won't get done at some point. A merger still makes a lot of sense in many respects. But it apparently won't happen right now. Let's see how quickly the blog tide turns now. The bright side: All the analysis still holds–at least until the next time Microsoft and Yahoo discuss marriage.

Brier Dudley fumes:

The New York Post owes everyone a good follow-up story. You can't just drop a bombshell that jerks around 80,000 Microsoft and Yahoo! employees, rocks Wall Street and then fizzles before the day is over.

The Post should investigate -- and report -- whether its anonymous investment banker sources made any money off the huge run in YHOO caused by its story. If the Post doesn't do this, the SEC might.

Ashkan "Froosh" Karbasfrooshan agrees:

In wake of the MSFT/YHOO faux rumor that started before the market close by the NY Post and WSJ and ended after the market close, I was going to make a case that the SEC should apply some pressure to the folks over at the NY Post and the Wall Street Journal.  When I woke up this morning, I realized I’m not alone in saying that.

...

I’ve owned YHOO for over three years, am long YHOO and stayed in the stock yesterday because I like YHOO’s strength in video and in display ads, and it is, well, the largest/safest online media company.  I also used a couple of examples of why rumor-based runups are not good examples of getting into a stock.

But, with 200M shares exchanging hands (10x daily  volume), I wonder if there is something illegal - let alone unethical - about a venerable old media newspaper reporting:

  • before the market opens that “according to unnamed sources two of the most widely-held media/tech companies are talking about a merger”
  • no real news comes out all day, neither company denies this really.
  • the same newspapers come back at 4:30pm saying the deal is off, after the market close.

Seems strange, borderline unethical / illegal.

Buffer overflow:

Around the Net Around Computerworld Previously in IT Blogwatch

And finally... Mario: Game Over

Richi Jennings is an independent technology and marketing consultant, specializing in email, blogging, Linux, and computer security. A 20 year, cross-functional IT veteran, he is also an analyst at Ferris Research. Contact Richi at blogwatch@richi.co.uk.

Copyright © 2007 IDG Communications, Inc.

Shop Tech Products at Amazon