Last year a deal between Microsoft and Yahoo seemed very possible because Yahoo wasn’t in a strong financial position while Microsoft was running wild. Also, Yahoo had a flexible management team meaning that it was open to business, however, with the new CEO Carol Bartz everything has changed. Although Yahoo’s new CEO Carol Bartz is also considering all proposals, he is a strong man and he has all the advantages. Here is what Cowen & Co. analyst said last year about a Microsoft-Yahoo deal:
“In our view, Microsoft is unlikely to allow increasing OSB [online-services business] operating losses to continue in perpetuity, and we expect the company to implement one of the following strategies within the next 18 months: (1) the purchase of 100 percent of Yahoo; (2) the purchase of Yahoo’s search business; or (3) the exit of its online-ad and access business, potentially by exchanging MSN/Live.com for a minority stake in Yahoo,” said analyst Jim Friedland.
Yahoo got iself a new CEO and management team therefore “we believe that new CEO Carol Bartz will consider all potential transactions. However, Yahoo is in a solid financial position and Bartz is negotiating from a position of strength. Yahoo has a number of competitive challenges, but it doesn’t need to do a deal and there are some serious strategic risks to selling its search asset,” added Friedland.
Regarding Microsoft acquiring Yahoo, it is very hard now as Microsoft dropped 16% in operating revenue from advertising in Q1 2009, while Yahoo dropped only 12%, and Google recorded a 5% increase in advertising revenue.
“OSB’s profitability has deteriorated substantially due to ballooning depreciation from underutilized data center capacity combined with unprofitable ad deals whose already poor performance has been exacerbated by the recession. We believe Microsoft’s underperformance in the Internet business limits its options in negotiations with Yahoo, and we have updated our view of the likely outcomes: (1) no deal–70 percent probability; (2) a search-only deal–10 percent probability; (3) an exchange of Microsoft OSB and cash for a large stake in Yahoo–15 percent probability; and (4) a purchase of 100 percent of Yahoo–5 percent probability,” concluded Friedland.
Well, if it were to believe Jim Friedland Microsoft will not acquire Yahoo. At least for the moment. Maybe it won’t happen this year, but who knows what 2010 will bring to us?
via CNET
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