Microsoft is already $41 billion in the hole on the Yahoo deal

Bloggers are supposed to offer opinions, but when it comes to Microsoft buying Yahoo, the opinion of the stock market is much more interesting than anything I might say.

An article in the Wall Street Journal today (Chicken Little Investors? by Robert Cyran, Rob Cox and Dwight Cass of breakingviews.com) points out that since the proposed deal was announced, Microsoft's stock price has fallen 12%. In terms of market value, that translates to $41 billion. This over a deal valued at $44.6 billion.

What's scaring off investors? The article suggests:

• Microsoft has overpaid for deals in the past
• This would be the biggest takeover ever for Microsoft
• Academic studies suggest mergers tend to destroy more value than they create
• Steve Ballmer already looks stretched managing the company
• Microsoft has struggled to crack the online-advertising market

Despite all this, the authors think the large drop in the stock price is an over-reaction.

Time will tell.

[harveybook]

As an investor who owned no Microsoft stock before the deal was announced and has since purchased several thousand shares, I commend you on a succinct and clear summary of investor concern. I agree with you that the stock price drop is an over-reaction.

[john55440]

What will the stock market say about Yahoo's apparent rejection of Microsoft's initial offer?

Won't Yahoo's stock price plunge?

I guess I will find out Monday. (grin)

[RicABlair]

to harveybook--michael never stated the market dive on microsoft was an overreaction; he only stated that the authors of the Journal article felt that way. He left his own opinion open--he sides with the market so he can't be wrong. If Microsoft succeeds in its takeover bid, its shares may well continue to slide while Yahoo skyrockets, especially if it costs Microsoft more and more to succeed. If Microsoft is unsuccessful in its takeover, its shares may recover but not likely all that it has already lost which is quite a big bundle. If nothing happens for a while that could be the worst scenario because Microsoft will keep freefalling until there is closure. I know as little as he does about the market, but IMHO microsoft deeserves a huge slice of humble pie. Monday won't be the end of this saga.

[RicABlair]

It's late Monday afternoon and Yahoo rejected the MSFT takeover bid--as predicted, MSFT is hurt in a waiting game. Its shares fell another 1.23% and a successful bid will cost MSFT plenty more than what it has presently offered. A hostile takeover is costly too even if share price is contained. to harveybook--you should've bought Yahoo, the takeover target, not MSFT the black knight. As Michael notes the market says it all.