(AP) - Sure, things look rough for
Yahoo Inc. and Microsoft Corp. now that they couldn't agree on a deal. Yahoo's
stock has cratered, and Microsoft has to figure out another way to catch up in
the online ad market, a flaw so big it was willing to pay $47.5 billion to fix
it.
But in the long run, Yahoo's rejection of Microsoft's acquisition offer
could turn out to be brilliant for both companies. Sometimes the best deals are
the ones you don't make, especially in technology, where big mergers and
acquisitions are notoriously difficult.
Instead of turning into the next AOL Time Warner -- a deal regretted enough
that the acquirer's name, AOL, eventually was dropped from the corporate title
-- perhaps Yahoo and Microsoft will be like other companies that were better off
after their proposed linkage got scuttled.
Take, say, Comcast Corp. and Walt Disney Co. When Comcast spent two months
of 2004 pursuing Disney in a bid originally valued at $54 billion, the cable
company was chasing the notion that it needed to be an owner of entertainment
content, not just a distributor.
After Disney sought to stay independent (like Yahoo) and Comcast's
shareholders were dubious about the high price (like Microsoft's), Comcast
dropped the bid, saying that focusing on distribution wasn't so bad after all.
Disney ended up revitalizing itself by making its own acquisition, of a more
natural partner, Pixar Animation Studios Inc. Meanwhile, Comcast settled for a
slice of the MGM studio and ownership of smaller content producers like the E!
entertainment cable channel, and it has been able to concentrate on competition
from telecommunications companies encroaching on the cable business.
Considering the wild swings of the entertainment industry, Comcast should be
happy "not to have that rocking horse to ride at the same time," said analyst
Charles King of Pund-IT Research.
Given that Microsoft sought the gigantic tie-up with Yahoo in hopes of
better challenging Google Inc. in online search and advertising, Microsoft
should be glad it stepped away from buying business software maker SAP AG as the
companies discussed in 2004. That wouldn't have prevented Microsoft's Internet
problem, and it likely would have caused regulatory and operational headaches.
For its part, by pursuing a separate path -- including smaller acquisitions
of its own -- SAP has its shares higher now than they were at any point in 2004.
Of course, it's difficult to know how differently things would have turned
out if these and other unfruitful tech merger talks had succeeded.
Maybe Sun Microsystems Inc. would have been able to save Apple Inc. as well
as Apple turned itself around after the companies decided against combining in
the 1990s. Perhaps Yahoo wouldn't need to worry about Google now if it had
bought eBay Inc., as the two sides discussed in 2000. Certainly Yahoo might like
to own Google, which was a possibility in 2002 talks before Google went public
and saw its value multiply.
But quite often, the particular cultures or product lines of tech companies
are so hard to combine that the perceived advantages of large mergers and
acquisitions dry up quickly. That's one reason why Forrester Research CEO George
Colony went so far as to say a Microsoft-Yahoo deal would have been "a
disaster."
At the very least, if Yahoo and Microsoft aren't better off apart, then they
may be no worse off. Emery Trahan, a professor of finance at Northeastern
University, pointed out that General Electric Co. and Honeywell International
Inc. generally have done fine despite dropping their acquisition plans under
regulatory pressure in 2001.
"It's not necessarily a failure to walk away," Trahan said. "It might be
more of a failure to push for a deal under terms that don't make sense."
It remains to be seen, however, whether Microsoft and Yahoo will fall into
this category. If Yahoo management fails to improve the company's fortunes, or
no other suitor emerges, Microsoft and Yahoo still could end up mating after
all.
Copyright 2008 Associated Press. All rights reserved. This material may not be
published, broadcast, rewritten, or redistributed.
|