Tech trends and business ideas

All things that motivate entrepreneurs

Monday, February 04, 2008

When in doubt, whip up bidding frenzy...

OK. So Yahoo has help at hand. Microsoft can’t have it easy if there’s gonna be a bidding war, especially with Google in the fray.

This puts us, users - officially in the spin zone, where the air gets cloudy with FUD. VC Fred Wilson says “Consolidation of ownership of web services is not a good thing for the Internet. If you think about the Internet, it's a huge distributed network of loosely connected services owned and operated by literally millions.”

Fred quotes several analysts outlining the way forward for Yahoo –

    • Outsource search to Google. That will provide at 25% boost to cash flow according to Citigroup analyst Mark Mahaney. I have heard that this is worth about $10/share in Yahoo!'s stock price.
    • Dividend out to shareholders the interests in Yahoo! Japan and Alibaba. They are worth $12/share according to this WSJ article.

    • Split up the remaining company into several businesses which can be independent public or private companies. I would put Yahoo! home page, search, MyYahoo, and email into one company and let that be new Yahoo! The other assets could be sold off or assembled into additional private or public companies.

Being a prolific user of the Web, I loath any one player dominating this universal medium. While the Internet rewards competitive innovation, Microsoft has a checkered history. It frequently sought to establish proprietary monopolies -- and then leverage its dominance into new, adjacent markets. On those lines, the acquisition of Yahoo will allow Microsoft to extend unfair practices from browsers and operating systems to the Internet. That’s a bit scary.

That was my perspective as a user of search. Now come to think like a Yahoo stock owner. When pressed between a rock and a hard place and with no clear growth strategy that Yahoo has now, it’s better to sell and cash out. There are a lot better things that one can do with the kind of money MSFT or any rival bidder might offer. With America looking into that deep pit of a recession, the next boom could be a few years away. So I prefer cash in hand so that I can buy some assets on the cheap. There could be several foreclosed houses coming at bargain prices.

I have no illusions of Yahoo climbing up the ladder on its own, not at least as long as Google is around. So why not gradually swap it for some Google stock itself – at $544 a share, I’d say it’s not bad. Or to take a slightly contrarian view (if you have some guts, that is) go stock up on a Citigroup or Merrill Lynch that come dead cheap now thanks to the mortgage meltdown. The tide would soon turn since SWFs are bailing them out and they’ll be right back at their prime, may be with different owners. Meanwhile Yahoo board can order a re-valuation of its shares in the interest of its shareholders, to give them a better idea of their stock’s worth and pray for the time lag to whip up some bidding frenzy as a bonus… Get me Larry Ellison, please - will ya...!

Tell me, how do you like my little spin…?


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