Microsoft-Yahoo Merger: 'Tremendous' Value -- or Big Mistake?

Exterior view of Yahoo Inc. headquarters in Sunnyvale, California.
Paul Sakuma
Exterior view of Yahoo Inc. headquarters in Sunnyvale, California.

Microsoft's reported wooing of Yahoo would be either a "tremendous" deal -- or a drag on the software giant's share value. David Garrity, director of research at Dinosaur Securities, and Walter Pritchard, managing director of equity research at Cowen, debated the pros and cons of such an acquisition, on "Morning Call."

Pritchard pointed to Panama, Yahoo's new search-linked ad-sales system, as "half the reason" the two companies would consider such a pact. And he told CNBC's Michelle Caruso-Cabrera that the "other half" would be "driving innovation" in the Web sphere -- which, he says, Microsoft has "lagged on."

But Pritchard thinks the acquisition would be a mistake for Bill Gates' firm, for several reasons. "Paying $50 billion for Yahoo is a bit steep -- the money could be better used in other ways," he said. Where should Microsoft put those funds? Going "beyond search" and buying "a company a month" -- until it catches up to Google, which "acquired its way to innovation."

Garrity couldn't disagree more: He says "the deal makes a tremendous amount of sense." He sees search technology as having plenty of unexploited growth left. The research director explained, "Instead of having the No. 2 and No. 3 [search providers] investing and being redundant," the merger would combine Panama with "what Microsoft already has." The resulting synergy could create a "tremendous amount of value."