Yah(b)ooSoft - Lets get down to the key question here

Vinh posted on his blog that us old hands here at Broadsight had already analysed That Deal - so we realised that we had to step up to resemble that remark

Here's what I posted there (with some additions in brackets):

- most industries can stably exist with a “big 3″ where No 1 gets a lot of the loot, so I see no (structural) industry rationale per se
- MSFT of the big 3 has the biggest need to shift position as its old (and far larger) cash cow is declining, (and there are no obvious next steps there), so that is probably the strategic driver to beef up here (in a growth medium)
- Its a good time to take out Yahoo - market and company sentiment is at low ebb
- Personally, I don’t think its that dumb for MSFT to do this, in fact I’m quite encouraged that they are being so bold - but execution is the issue in these cases to make it work, and that will be hard, they are totally different businesses and cultures. AOL/Time Warner did not work at all for these reasons

I'd add something else - MSFT is strategically a very smart player, or at least always has been to date - I know its infradig to dig them, but anyone who groks strategy must at least respect their skill at playing the game. In times of turmoil past, their approach has always been to run a number of strategic options simultaneously, then move very fast and with scale when they decide on a direction.

Caveat - how influential is Bill Gates still? - this seems bigger scale and less subtle than past plays*, I still just don't get the game theory of going so high in the bidding so early...I assumed initially it was to frighten off rivals as the price was high but time was short, and I do think it will flush other players out into the open quickly. But (to me anyway) it puts too many of the aces in Yahoo's hands as far as I can see...why not just a bid at a reasonable premium above price - why put the whole farm on the table in round one?

But heck, the multimedia megacorps have all had their share of dumb deal dealing (or at least seem to have done minimal game theory analysis for the price of the prize) - witness eBay & Google's overbids and letouts for Skype and YouTube

Update - there are quite a few posts today noting that private equity can't pay what MSFT can, effectively because either:

(i) They have no strategic rationale to take on a $44bn price tag, ie they cannot justify the premium price of YHOO ownership that a player in the game who needs to increase their impact will.

(ii) They cannot achieve the synergies a MSFT/YHOO merger can.

To believe the former you have to believe essentially that PE players cannot obtain funding near the MSFT bid for YHOO in todays' market (and as Henry Blodgett points out, its a real ask) - which tells you something about why I'm amazed MSFT bid so high upfront.

Synergies are not really material, even though a large proportion of the operating cost is labour, (which costs YHOO c $ 3bn pa), so even say a c 33% saving is a only $1bn pa on a $44bn business case.

But of course the key question is what will the entity be called - Mihoo, Yahsoft, Microo ?

* Ah - its more Steve Ballmer's deal - Fake Steve Jobs says much of what I have in his own inimitable style