5 Reasons Why Yahoo Rejected Microsoft’s Offer

When Microsoft offered 44.6 billion dollars for Yahoo, it seemed very much OK offer. However, there are 5 reasons why Yahoo could not take the offer.

1. Microsoft is being cheap. They offered very low price.

Indeed, Yahoo has 1.39B shares, according to public information about YHOO stock. That means, Microsoft offered $32.086 for each Yahoo share. Take a look at the stock chart below. Does it look like a fair premium price?

$32 looks kind of low. Even if YHOO stock goes sideways for the next few months, I would consider something like in range of $40-45 as a premium.

2. Microsoft is being hostile.

Yahoo struggles. It’s really not the best time in corporate history. Microsoft’s so called “premium” bid comes with assumption that Yahoo sinks to the ground. Why would they buy a company, which goes down?

It means Yahoo is not going down.

It means Yahoo is facing difficulties that any big company would experience. That means Yahoo already made right moves which will be paying off within the next few quarters. Wait and see: Yahoo revenue and profits will be 10-20% more than now in a year.

3. Yahoo costs much more.

Taking a look at recent Facebook evaluation, based on Microsoft’s $15 billion estimation, I’d say that if company #7 in whole internet traffic (which offers one social networking service and has a price tag of $15B) costs so much, Yahoo as #1 should cost at least 5-6 times more.

Why?

According to alexa.com, Facebook has only about 5% of overall internet traffic, whereas Yahoo has about 28%. Based on Microsoft’s evaluation of Facebook, Yahoo should cost about 82.5 billion dollars.

4. Yahoo is offering tons of services besides search.

Yes. Yahoo has services which will stay forever in Internet, no matter if social networking hype exists or not.

For example, have you tried Yahoo Finance? How about Google Finance or MSN Money? Google or MSN cannot compete with that. In fact, there is no service in Internet, which can compete with Yahoo Finance. I’ve met a few of people who are pretty much successful with money, stocks and financial part of life and they all agree that competitors didn’t come even close.

That was just one example. There are many others.

5. Yahoo is #1 in Internet.

Let me repeat myself, Yahoo is #1 in Internet traffic, having about 28% of the world’s hits, clicks and visits. Just think about it for a second: almost 1/3 of Internet visits are happen at yahoo.com domain.

There is a trend to online applications. Web desktops and Internet operating systems are very attractive future technologies. Microsoft desperately needs to grab biggest share of Internet.

Next generations of computers will be just big monitors with embedded graphical card, keyboard, mouse and “Internet ID” card slot where you insert a small card with a bit of your personal information.

Internet computers will be cheap. Not $1000, not even $500. About $100 or even free. However, guess what? Microsoft will have everybody on the hook for services: $29.99/mo for Microsoft Windows 2010, another $19.99 for online documents services, plus $19.99 for telephony, plus $39.99 for Internet MS TV, plus…

Let’s just say, Internet rank #1 matters. Much more than $44.6 billion dollars.