Microsoft’s Yahoo Bid is Aimed at Safeguarding Its Interests

While it may not be comparable to Microsoft’s (NASDAQ:MSFT) +$40 billion acquisition bid for Yahoo (NASDAQ:YHOO) in 2008, ^[1] the software giant has recently signed a non-disclosure agreement (NDA) with Yahoo to get a closer look at its finances. ^[2] This time however, Microsoft is not expected to make complete take-over bid for the erstwhile internet giant, as its interests should be limited to protecting its search alliance with Yahoo.

See our full analysis for Yahoo’s stock here

Yahoo 2011 is Nowhere Close to Yahoo 2008

Microsoft’s 2008 bid for Yahoo was largely a result of the latter’s dominance in the global online advertising market. 3 years forward, the landscape has changed drastically, with both Google (NASDAQ:GOOG) and Facebook comfortably nudging out Yahoo in both display and search advertising. Additionally, Yahoo’s biggest contributors to its value are its Asian assets. The biggest of these holdings, Alibaba, is essentially an e-commerce business which at present does not have significant synergies with Microsoft’s core business of application software.

What Microsoft would be interested in however, would be to still have a say in the search alliance between Bing and Yahoo. While the 10-year pact has not yielded ground-breaking results, Microsoft and Yahoo still hold a sizeable combined market share of 30% in the U.S. according to comScore. ^[3] By partly financing this deal, Microsoft would want to ensure that these interests are protected.

We have a price estimate of $17 for Yahoo’s stock, which is around 14% above the current market price.

Understand How a Company’s Products Impact its Stock Price at Trefis

1. Microsoft News Center: Microsoft Proposes Acquisition of Yahoo! for $31 Per Share [↩]
2. Bloomberg Businessweek: Microsoft is Said to Sign Non-Disclosure Agreement With Yahoo [↩]
3. comScore Releases October 2011 U.S. Search Engine Rankings [↩]