Microsoft/Yahoo: Will This Jump Start Other Deals?
If the MSFT/YHOO deal comes in above $44 billion, this could be the biggest tech deal ever, topping the JDS Uniphase's $41 billion acquisition of SDL in 2000. It's also way bigger than Hewlett-Packard's $23.5 billion acquisition of Compaq in 2001.
And, according to Thomson Financial, it would be the biggest merger since the $86 billion marriage of Bellsouth and AT&T in March, 2006. Micro-hoo would even top KKR's $44.2 billion purchase of TXU last year.
You might say this is defense against Google . Yet, it also looks like a new, improved Microsoft that's offering to buy Yahoo . It's not a Microsoft so cowed by antitrust regulators that it is afraid to take bold steps to protect and grow market share. This is a Microsoft that had a solid earnings report last week and confidence in its future growth. But more true to form, this is an opportunistic Microsoft, picking through the stock market's rubble to find an asset it has coveted at a very cheap price.
That's the good news to a market that's been sapped by the drip, drip of depressing news from the financial industry and worries about future credit-related time bombs.
"Maybe this will kick start M and A activity," says Rich Peterson, Thomson Proprietary Research director of capital markets.
"What investors need to think about is if this is a scarecrow in a field...an isolated deal, or whether this is the start of consolidation in content and digital platforms." said Peterson. "We're of the opinion it's probably going to be a good year" for deals.
So, Microsoft won't be alone. This doesn't mean the takeover business is back, but you sure do get the feeling that more strategic deals are waiting to happen. The beaten up stock market has created opportunities for buyers, and not just foreigners shopping with cheap dollars.
The waffling economy may also create opportunities for those ready to make offensive moves, taking advantage of others' trepidation. Then there's the need to play defense on the global stage.
Look at what Alcoadid today, for instance. It joined with China's Chinalco to throw a wrench into BHP Billiton's plan to buy Rio Tinto in what would be one of the biggest takeovers in history. In what the Financial Times called an "audacious share raid," the two snapped up a 12 percent stake in the mining group.
Then there's Motorola .It moves from a position of weakness, but it is ready to consider selling its flagship handset business. Granted, investor Carl Icahn has been agitating for change at the company, but Motorola is shopping its business in a market that hasn't seen a lot of buying activity. It's become a buyer's market, and there should be buyers for assets in all types of industries looking for a bargain.
The Microsoft bid is the type of deal that gets the imagination running. Who's next? Time Warner's AOL? That talk is already flying out there. Microsoft does give a slap to Google with this bid and it's taking a hit in its own stock by the way. What's it mean for online advertising, digital entertainment and the content providers if it succeeds? There's also plenty to debate about whether this marriage would be good for either company.
And finally, the market is betting with Microsoft. The stock market is telling us traders think Microsoft will succeed with its bear hug bid for Yahoo, probably at its offered $31 per share or close to it. The deal will also face scrutiny from antitrust regulators. Already, the Justice Department says it is interested in reviewing it. Yahoo, meanwhile, says its board is studying the offer.
--CNBC.com has business relationships with both Yahoo and Microsoft.
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