Well, I admit it. Accepting a 62% premium over last night's stock close is a little better advice than I had proposed in my letter to Jerry Yang.
Thanks to the overflowing cups at Microsoft and their estimates that $1 billion of synergy can be created in two years, the possibility of Yahoo! becoming a division of Microsoft isn't only real, but the board at Yahoo! would be foolish not to accept the kind offer of stock-or-cash 62% premium to last nights close.
Jerry's been at the CEO role for a year and the best he can do is cut 1,000 jobs?
Strategic fit [4/5]. Yahoo! and Microsoft are each behemoth software companies with massive hosting services experience. They were partners in search advertising until Yahoo! acquired all of Overture. This acquisition proposal (which Yahoo! says they're thinking about) is the second time that Microsoft has proposed acquiring Yahoo! A year ago that proposal was rejected since Jerry Yang thought he could turn the company around. The risk is that 1+1=1.5.
Timing [5/5]. Coming on the heels of Google's 4Q disappointing earnings (last night), and as momentum in the press on Jerry Yang's inactions mount clearly shows that Steve B. can manage timing pretty well. This deal for $44.6 billion is a huge premium over Yahoo!'s current price and trumps any competitive bid before the auction even begins. On the call, one Microsoft person said that there is no likelihood of competitive bidding since the only other major company in the space - Google - will be prevented for anti-trust reasons. I would not have gone there. A better answer would have been to say 'that's why we offered such a big premium. We don't want any others to come to the table.' [That's Microsoft scaring competitors away].
Customer demand [4/5]. Advertisers like this deal because it simplifies their choices - Micrhoosoft or Google. I bet there is no consolidation of properties though. Sharing technologies and R&D budgets - sure.
Potential [4/5]. Some might say that this deal is too little, too late in that Google will be too hard to catch. I disagree. The potential to reinvent the search experience is very real and Microsoft - Yahoo! are in the best position with the properties and engineers to accelerate that reinvention. My concern is that to deliver on the claim of creating $1 billion in synergy is going to be really, really tough.
I've done that math at another company. It's a risky proposition. More than anything, this combination will energize both the Microsoft Live Services and the Yahoo! teams since it puts them back in the game. I bet Google goes after the engineering talent...
Overall: 17/20 = 85%.