The Third Pig

Yahoo Playing Hard to Get

Posted by Ben Taylor on May 5, 2008 02:51 PM


Over the weekend, talks between Yahoo (YHOO) and Microsoft (MSFT) deteriorated. Microsoft has apparently taken its offer of $33 per share off the table. The market reacted today by sending shares of Yahoo shares down by 14%. The stock was down much more earlier in the day. Seems there is still some hope that a deal will still get done.

Word is the deal collapsed because Yahoo is asking for $37 per share, and Jerry Yang and David Filo are personally saying they want at least $38 per share for the company. Most agree that the $33 Microsoft was offering is a substantial premium to Yahoo's real intrinsic value. Jerry Yang and David File

The market seems to want these two companies to get together. But could this be much ado about nothing? I mean is the combined company really going to be able to compete with Google any better than each has on its own? Google's market share for Web search in the U.S. rose in February to 58.7 percent, up from January and the same period a year ago, while Yahoo's, at 17.6 percent, was down compared with the same periods. Microsoft's MSN was 11.2 percent. Together, Yahoo and Microsoft only have half of Google's share in the space.

Google's present position as the market leader has only gotten more solidified over the years. Just over two years ago (August '05), Google only had a share of 37%, while Yahoo and Microsoft together had 45% of the market. Google is in a prime position no matter the outcome of the Yahoo/Microsoft merger. When "Google" ceases in being a verb, then its time to worry.

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Disclosure: I and the clients of Brick Financial Management, LLC owned shares of Google at the time of this writing.

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