Microsoft-Yahoo Merger: A Strategic Opportunity

Other than that the merger can result in a significant cut in Microsoft`s operating expenses, as Microsoft claims that it can cut off at least $1 billion from operating expenses if the two companies are merged. The shareholders are also likely to benefit from such a merger as the two giant companies working together will most probably cover up for Yahoo`s recent losses and impairment in its share prices.

Microsoft is offering a very striking investment prospect for Yahoo shareholders, producing revenue growth of 15%, earnings growth of 26%, and return on equity of 35% on average for the past three years.

Yahoo`s large investors having a huge amount of shares in Microsoft as well are very much likely to force yahoo to merge with Microsoft as it appears to be in there best interests. According to Riskmetrics, “90 percent of all yahoo institutional investors also happens to be Microsoft shareholders.

As well as 15 of these top 20 investors own Microsoft more than they do Yahoo.

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” (Kawamoto, 2008) Such shareholders will no doubt ask Yahoo to sweeten up the deal but also tell them not to let this opportunity go and get the best of it. David Katz who is a chief investment advisor for matrix advisors which happens to be a longtime holder of Microsoft shares suggests that “the merger is in the best interest of both companies and that the price offered by Microsoft is fair enough and that is the best shot they both can get against their rival company”.

(Kawamoto, 2008) To make yahoo reconsider Microsoft`s takeover bid of US.

6 billion, some of the shareholders have filed a lawsuit against Yahoo for refusing the offer. And according to wall street journal “Google has refused an offer made some time ago to help Yahoo with its search advertising business so as to discourage Microsoft`s takeover bid. ” (Olsen, 2008)

Conclusion

Perhaps the best likely option left for yahoo is its merger with Microsoft. This will result in a better organized company and will have synergistic outcomes in four areas: economies of scale and the increase in value for advertisers; merged engineering skills to boost up innovation; redundant costs being eliminated thorough efficiency in operations; and the ability of innovating newly surfacing user experiences concerning video and mobile.

Kevin Johnson who is the president of the platforms and services division of Microsoft says that “They will be able to achieve economies of scale while innovative advancements are delivered by attaining research and development critical mass if the assets and strong services focus of both Microsoft and Yahoo are merged together. Having more then one dominant player will serve the industry well and stakeholders like advertisers, publishers and consumers will be offered more valve and genuine choice” (Redmond, 2008). If this deal gets through, this merger will be the biggest merger in the history of technology market.

References

1. Albanesius, C. (2007), Would a Microsoft-Yahoo merger work? PC World, Retrieved February 17, 2009 from: http://www. pcmag. com/article2/0,1895,2126193,00. asp Kawamoto, D. (2008, February 18).
2. Microsoft shareholders already own yahoo. Retrieved February 17, 2009, from http://www. zdnet. com. au/news/software/soa/Microsoft-shareholders-already-own-Yahoo/0,130061733,339286010,00. htm Olsen, S. (2008, February 14). Yahoo shareholders fight rejection of Microsoft bid.
3. Retrieved February 17, 2009, from http://www. zdnet. com. au/news/business/soa/Yahoo-shareholders-fight-rejection-of-Microsoft-bid/0,139023166,339285912,00. htm
4. Redmond, W. (2008, February 1). Microsoft proposes acquisition of yahoo. retrieved February 17, 2009, from http://www. microsoft. com/presspass/press/2008/feb08/02-01corpnewspr. mspx