Microsoft has made a bid for Yahoo, and the Yahoo board of directors is anticipated to use the Nancy Reagan “Just Say No†defense. I feel like I’m back in the 1980s merger boom.Â
Several thoughts:
1. Rumor has it we are in a recession. It is likely then that Yahoo stock is currently trading at a price that is not its highest. Indeed, Microsoft’s bid for Yahoo is basically a big fat memo to Wall Street, in bolded all caps, indicating it (Microsoft) thinks Yahoo is a good buy. How long before other bidders get the clue and come knocking on Yahoo’s door?
2.  Debt is cheap these days. Super cheap. Cheaper than it was in the 1980s when we saw a wave of debt-financed takeovers. If Yahoo really is a bargain at its current price, other bidders will appear, using a good chunk of debt-financing, if necessary, to make their bids.
3. If other bidders show up, can the Yahoo board members continue to “just say no†without violating their fiduciary duties? At least for now, I am of the view that the Yahoo board can easily continue to keep the door to bidders closed. Yahoo stock traded around $27-ish over the past year, and Microsoft is now offering $31 per share. Given that, back in Jan. of ’06, when the S&P 500 and the DJIA were both weaker, Yahoo was trading in the vicinity of $40 per share, I have no problem thinking the Yahoo board can embrace their inner Nancy Reagan until a bidder steps forward with an offer well over $40 per share.
4. Yahoo’s dance with Google is an interesting defensive move, making me think of the white knights, crown jewels, and lock-ups of the days of yore.
5. Am I the only one who finds it *very* ironic that Microsoft is making a bid for Yahoo only days after AOL Time Warner has made clear it is going to try to undo its mega-merger from seven years ago between AOL and Time Warner? Note to Microsoft: It is important to have very specific business justifications – and related business plans – before indulging your urge to merge.
The M&A world seems to be flashing back to the 1980s. Debt is cheap, private investors are bold, and some mega-mergers from the late 1990s might be perfectly situated for bust-ups. It is just a matter of time before everyone is wearing parachute pants again. You heard it here first.Â
