Slashdot Mirror
Yahoo! Rejects Microsoft's Offer, Says 'Still An Option'
mikkl666 writes "In response to an open letter from Steve Ballmer, Yahoo! posted a press release claiming that Microsoft's offer 'substantially undervalues Yahoo!' and is therefore not in the best interest of the company. They also bemoan that the letter 'mischaracterizes the nature of our discussions' and that the threat to make an offer directly to the shareholders is 'counterproductive and inconsistent with the stated objective of a friendly transaction'. Nevertheless, they explicitly point out that a transaction with Microsoft is still an option, but only if they are willing to pay 'a price that fully recognizes the value of Yahoo!'"
Yahoo is ahead of Microsoft in a few areas... Yahoo's search is worse that Google (IMO), but Microsoft search is worse. Yahoo has Flickr and the social network 43Things, neither of which have a Microsoft equivalent. There's Yahoo Mail and Yahoo Groups, both of which are superior to what Microsoft has. But I agree... Microsoft has a tendency to be heavy-handed with new acquisitions, not to mention the ones it drowns in the bathtub on purpose.
PE isn't the be all end all of valuing companies. In Yahoo's case, it has particular problems because Yahoo has substantial unconsolidated holdings in other companies such as Yahoo Japan and Alibaba. The value of these companies shows up in the P part of the ratio, but the earnings aren't counted in the E part. The value of these holdings alone would put the value of the company close to the $10 billion number you propose.
If we believe Yahoo's forecasts, their stock price has a fair value closer to $40/share, but even coming up short of this doesn't make them very overpriced. They are in a rapidly growing industry and have had double digit revenue growth for many years, so I think they still qualify as a growth company.
They'll leave them alone until it makes sense to move over to windows/IIS. Hotmail stayed on BSD for years, but it's been IIS for quite a while now. they're not stupid, they'll treat it as business and move them over when it makes sense to do so. But the Golden rule in most markets is you sure as hell better eat your own dogfood if you expect your customers to, and eventually they'll have to move Yahoo! over if they do buy them. While it is true that Hotmail remained on BSD and Solaris for a long time, that's not because of some kind of smart business decision made by Microsoft. It's because Windows and IIS, even backed up by Microsoft's vast financial resources (permitting, for example, a much larger server farm with a much larger operating team and additional security measures), simply wasn't up to the task of hosting Hotmail.
Hotmail was launched on the 4th of July of 1996 and was bought by Microsoft in December of 1997. Microsoft believes strongly in the concept of "eating one's own dog food" (please note: this is a common term for using one's own products internally), and so immediately started making announcements that Hotmail would be migrated to Windows NT. The NT migration utterly failed, and there were even problems with the Windows 2000 migration. In June of 2001, Microsoft announced it had migrated the BSD portion of Hotmail to Windows 2000, but was forced to retract that statement a few days later. The final migration of all of Hotmail to Windows wasn't completed until 2003.
Not only because of Microsoft's belief in the "eat your own dog food" principle, but also because Microsoft had made public statements saying it was going to migrate hotmail to Microsoft operating system and web server software, it is clear that Microsoft really wanted that migration to work, but it still took over five years and three versions of Microsoft's server software.
"It is nice to know that the computer understands the problem. But I would like to understand it too." --Eugene Wigner