This time the noises about a Microsoft acquisition of Yahoo sound more serious. We’re also in 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 shortly after the millennium to discover that Time Warner was buying AOL. I wrote one of the few dissenting columns about this deal, arguing that both companies were acting out of fear, not vision. I got dragged onto CNN that afternoon — I think they had a hard time finding someone to trash the deal — and the hosts treated my skepticism with disdain. Who was this punk from an upstart Web site to be questioning the actions of titans like Gerald Levin and Steve Case?
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.
Prediction: If Microsoft acquires Yahoo, the companies’ stock will initially prosper and the media will cheer on a new round of the War on Google. But seven years from now Yahoo will be as much of a shell as AOL is today. The talent will flee, the user base will stagnate, and Yahoo’s ability to innovate will wither under the weight of Microsoft bureaucracy and the pressure to serve Microsoft’s software interests.
[tags]microsoft, yahoo, mergers[/tags]
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