Microsoft Makes $44.6 Billion Bid for Yahoo! - Potential Benefits
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In a letter to Yahoo’s board of directors specifically sent to the attention of its chairman (Roy Bostock) and CEO (Jerry Yang), Microsoft CEO Steve Ballmer lists four key synergies he sees as coming out of the deal. These include:
- Economies of scale related to the advertising platform. These include synergies across both search and non-search related advertising (Yahoo is a leader in banner advertising).
- Expanded capacity for research and development, thanks to the combined talent of Yahoo’s and Microsoft’s “engineering resources.” With a focus on a single search index and single advertising platform (instead of two separate ones at two separate companies), Microsoft anticipates many breakthroughs post-merger that would be “a function of an engineering scale that today neither of our companies has on its own.”
- Operational efficiencies, which Microsoft sees the combined entity gaining as a result of “eliminating redundant infrastructure and duplicative operating costs.”
- Improvements in emerging user experiences, specifically from applying those aforementioned engineering resources to video, mobile services, online commerce, social media, and social platforms.
Yahoo’s shareholders also stand to benefit from the deal. Microsoft is offering $31 per share in a combined half-stock, half-cash transaction. That’s a 62 percent premium over Thursday’s $19 close. But that’s now; let us not forget that Yahoo was trading at $34.08 per share as recently as late October. Even so, Saul Hansell of the New York Times thinks this is an offer Yahoo can’t refuse – and he’s hardly alone in his opinion.
Microsoft’s search and Internet operations, as Hansell points out, aren’t gaining a foothold in the marketplace. Yahoo has the audience and the know-how to run those properties. It may be second to Google in search, but it is still the most-frequently-visited destination on the Internet, with a monthly audience of 500 million.
So what could Yahoo get out of a merger with Microsoft? Well, there’s Microsoft’s general investment (monetary and otherwise) and technical expertise. Just before the Microsoft offer was made public, Brian McAdams, now head of Microsoft’s Advertiser and Publisher Solutions Group and formerly CEO of aQuantive, spoke glowingly of how “our integration efforts are paying off.” Yahoo would no longer be alone in its fight against the Google juggernaut. But what will it have to give up in return?
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