My Two Pence on 42 Billion

Hello again,

I wanted to put in my two pence about the Microsoft-Yahoo! 42-ish billion dollar merger before a decision to go hostile or merge or have a big ice-cream party (anything could happen) is announced by the boards.

Also, notice I said "two pence" instead of "two cents". This is not because I have any particular affiliation with the British government. Instead, as a result of recent devaluation of the US dollar, feel it would more prudent to work with the British Pound for the time being. Heck, I'll work with Canadian Cents if it gets really bad.

But I digress.

Microsoft is often though of as an evil monopoly. There is no doubt they've had some questionable business practices in the past. For example, a long time ago, they made (in some people's opinion) a very low and hostile offer for a internet browser called "netscape". Netscape basically said no, Microsoft integrated internet explorer into windows and Netscape was later bought by AOL. Microsoft was slapped with an antitrust suit and lost money because of it.

Well, it turns out, Netscape should have taken Microsoft's offer. After buying Netscape, AOL continued to decline as subscribers declined and declined and declined to what is now pretty non-existent. AOL now uses Internet Explorer for its browser.

Microsoft may be an evil, aggressive, opportunistic company, but at the end day they are very very good at what they do. They hire the best nerds from the best schools. They have to deal with some of the most complex security issues across the widest range of applications.

Make no mistake, IBM made the personal computer popular... but Microsoft Windows made the personal computer work.

If the merger happens, hostile or friendly, Microsoft will (and should) fire every manager at Yahoo!. The computer science beyond Yahoo! is very strong and the image heavy advertising program which Yahoo! owns is more appealing to large business than Google's textbox ads.

Lets face it, Gooogle's ads are ugly.

Yahoo has some very profitable aspects to it. The world uses Yahoo! Finance. The Personals site is incredibly polished and profitable. Their new women's site, called "Shine", allows them to advertise with high efficiency to a defined demographic. They have stakes in companies outside the US such as Alibaba to bring in further revenue.

But Yahoo is losing advertising market share. In my opinion, this is a direct result of the in-ability for someone to slap a Yahoo-based advertisement program on small business and personal websites. Have you ever seen anything except those ugly Google textboxes on small scale websites? Why management hasn't come to this realization is beyond my comprehension.

Creating deployable software with easy integration is what Microsoft DOES. In fact, Microsoft gets anti-trust lawsuits ALL THE TIME because of it. You can have your PC with Windows XP transmit songs to your Xbox for God sakes!

I'm still waiting on Windows Refrigerator and Toaster edition with the cream cheese add-on.

What if the merger doesn't happen?

Microsoft has tons of cash in their bank account. In all likelihood they'll probably just watch Yahoo! fall further and make another, lower bid in a year. But in the short term, they'll probably spend some of the money working on a few projects (I won't go into detail on them) that focus on integrating Vista more with the internet. There is a good chance that they'll institute a buyback of shares (a buyback is when a company purchases its own shares to increase the value of the remaining shares).

Either way, Microsoft walks into this deal with a future great outlook, or walks out to do some great business as usual.

Oh, and if they have an ice cream party instead, I totally want an invitation. Can you imagine how much Ben and Jerry's 42ish BILLION could buy?

-Mansij Hans
Member, Intigril Capital Management

Full Disclosure: Intigril Capital Management is long Microsoft at time of publication of the "My Two Pence on 42 Billion" article.