The Borg Strike

I should have finished writing this sooner, but here it is anyway. Microsoft is orchestrating a hostile takeover of Yahoo. In the red corner: Microsoft, with the tag-team support of Morgan Stanley's investment bank and the Blackstone private equity group, weighing in at a total $44.6 billion. "Microsoft's $31-per-share offer -- originally valued at $44.6 billion -- represented a 62 percent premium to Yahoo's closing price late Thursday, although it's below Yahoo's 52-week high of $34.08 reached less than four months ago."

In the (black and) blue corner cowers Yahoo!, with the hurried support of Goldman Sachs and Lehman Brothers, who are helping advise in a defense against this takeover. Their best plan: inticing someone with similarly deep pockets to bid as well: Disney, News Corp, or AT&T may have potential.

The near $45 billion offer is a bit too much for any smaller PE groups to try to tackle. The Times (same as the previous link) noted that Google (who may be your first thought for competing in a bid war with Microsoft over Yahoo!) probably couldn't get the acquisition (merger?) through the courts.

Why is MSFT doing this? Yahoo finance thinks "Although Microsoft remains the world's most valuable technology company, its position will become more precarious unless it can cultivate a more loyal Internet audience and generate more online ad revenue to subsidize the free services taken for granted on the Internet."

Will it work? FSJ doubts it. This merger comes down to Microsoft trying to catch up with Google by desperately trying to buy their best competitor. This kind of aquisition is often a last-chance kind of maneuver companies use when they aren't clever or innovative enough to organically meet their competition.

Another issue, this may be evidence of the first economic slowdown of Web 2.0 industry. Creative Capital has noticed a recent dip in myspace and facebook users and activity. Considering these companies depend entirely on their user activity, this may be indicative of a pretty harsh correction in company value down the line.