Microsoft has made a bid for Yahoo, and the Yahoo board of directorsÂ is anticipated to use the Nancy Reagan â€œJust Say Noâ€ defense.Â I feel like Iâ€™m back in the 1980s merger boom.Â
1.Â Rumor has it we are in a recession.Â It is likely then that Yahoo stock is currently trading at a price that is not its highest.Â 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.Â How long before other bidders get the clue and come knocking on Yahooâ€™s door?
2.Â Â Debt is cheap these days.Â Super cheap.Â Cheaper than it was in the 1980s when we saw a wave of debt-financed takeovers.Â If Yahoo really is a bargain at its current price, other bidders will appear, using a good chunk of debt-financing, if necessary,Â to make their bids.
3.Â If other bidders show up, can the Yahoo board members continue to â€œjust say noâ€ without violating their fiduciary duties?Â At least for now, I am of the view that the Yahoo board can easily continue to keep the door to bidders closed.Â Yahoo stock traded around $27-ish over the past year, andÂ Microsoft is now offering $31 per share.Â Given that, back in Jan. of â€™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.Â Yahooâ€™s dance with Google is an interesting defensive move, making me think of the white knights, crown jewels, andÂ lock-ups of the days of yore.
5.Â 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?Â Note to Microsoft:Â It is important to have very specific business justifications â€“ and related business plans â€“ before indulging your urge to merge.
The M&A worldÂ seems to be flashing back to the 1980s.Â Debt is cheap, private investors are bold, and some mega-mergers from the late 1990s might be perfectly situated for bust-ups.Â It is just a matter of time before everyone is wearing parachute pants again.Â You heard it here first.Â