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Microsoft will end up buying Yahoo

November 21st, 2008 · 1 Comment

I predicted recently that with Jerry Yang on his way out as Yahoo’s CEO, Microsoft CEO Steve Ballmer would end up buying Yahoo.

Since then, Ballmer has declared “Acquisition discussions are finished,” while leaving the door open to some kind of searching partnering deal. As you’d expect, Yahoo’s stock price dropped yet again. At around noon on November 21st, Yahoo’s stock price, $9.29, is about a buck above its 52-week low.

A lot of people are telling me that Ballmer really doesn’t have any interest in Yahoo and that the deal is as dead as a doornail. I don’t believe that for a minute.

Ballmer wants to compete with Google on Google’s home-turf of online search and advertising. Last February, Microsoft offered $44.6 billion for Yahoo. That was $31 a share, a 62 percent premium on Yahoo’s share price at the time. Yahoo turned Microsoft down flat. According to Yahoo, it wasn’t enough money.

Things have changed since then. Today, a ten dollar a share offer for Yahoo would come up to $14.3-billion.

But, why would Ballmer even bother to offer that much? All he has to do is keep saying that Microsoft has no interest in buying Yahoo, watch the company’s stock sink even lower, and then swoop in, at say $5 a share.

Microsoft ends up with the brand-name online search and advertising infrastructure it wants to compete with Google at a bargain-basement price. And, Ballmer gets to snicker at all the Yahoo executives who thought they could beat him.

I can see this happening. In fact, I’ll be surprised if it doesn’t happen. In this economy, Yahoo has nothing but trouble ahead of it, and Microsoft still has everything it always wanted to gain from the acquisition.

I don’t, and won’t, own a share of any of these stocks so I’ve nothing to gain or lose here. I just see a business deal here that makes perfect sense for Microsoft. So, the next time you hear Ballmer bad-mouthing Yahoo or any chance of a deal, just keep in mind that it’s in his best interest to see Yahoo’s stock sink even lower.

Tags: Business · Mergers · Microsoft · Yahoo

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