Sunday, April 6, 2008

Microhoo! Can it work?

Microsoft want Yahoo! Wants it badly. That's the reason they are trying to bully Yahoo! (last Friday's announcement) into selling for the original offer price. I wrote already why this deal will not work, I want to speculate a little bit more.

Most mergers between big companies fail. One of the latest examples: Daimler-Chrysler. Some mergers work. Example: Honeywell/Alliance Signal. Both were mergers of about equal sized companies with similar products. Microhoo! is a different case: Main product of Microsoft is software, main product of Yahoo! is Web content and aggregation. Microsoft also has Web content and aggregation, but, for more than 12 years can't make it work. The only reason MSN is still alive is Microsoft's bottomless pocket. Can we find similar merger in late history which worked? Of course: Disney bought Pixar and it works great. Why? Disney management (and it was new management after ousting of Eisner) saw that their animation division lost it's touch and that Pixar's films are the best in business. But it wasn't enough just to buy Pixar, the main thing was to do it right. Disney essentially replaced it's animation division with Pixar, and gave Pixar's management free ride there.
I think Microsoft should do similar thing: kill MSN, make Yahoo! it's only Web portal and search engine. Leave everything to Yahoo! management. Maybe they don't always the best in business, but for sure they are head and shoulders above MSN management. And get out of the way.
But it will not happen this way. Ballmer is a control freak. He will do it his out way. Yahoo! management will go. Yahoo's systems will be replaced with Windows based crap, at least tripling the cost of hardware and software. Instead of Internet division losing 300 million a year, Microsoft might just get a division losing at least half a billion. It's not pocket change, not even for Microsoft.

My opinion: Microsoft moves from "don't buy" category to "sell" right here.

Full disclosure: at the time of publication author did not have positions in stocks mentioned in this article. Positions can change at any time.

Disclaimer: This article is not intended as an investment advice. Every person should make her/his own investment decisions based on all available information and advice from her/his own financial advisor.

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