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Microsoft-Yahoo Merger Review Report

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Updated: Dec 2nd, 2021

Introduction

There have been talks between Yahoo and Microsoft companies where Microsoft intended to purchase Yahoo so as to compete with Google. Google has been a major threat in the internet industry, leading to the need for a merger in order to compete with this giant company. This issue has raised discussions of whether it would be beneficial to shareholders or whether the two companies will be in a position to get over their cultural issues so as to come up with a better search engine. (Pedrycz, 2008)

The impact on Yahoo shareholders

If the merger succeeds, Yahoo shareholders will be affected in that by combining with a bigger company like Microsoft; it is obvious that their shares will gain value. This is because Microsoft has a better financial foundation as well as the technical expertise that would enable it to grow faster. However, each of the two companies has developed separately, which would make the outcome of their merger much competitive. On the other hand, it has occurred that shareholders would be interested in an independent company than they would with a merger. This has been the reason why yahoo’s share price has improved, with a share going for about 24.83 dollars and could be rising. If the deal fails, then shareholders of yahoo would seek refuge in the deal between Yahoo and Google concerning search and advertisement where yahoo shareholders would benefit a lot since yahoo’s share might definitely gain value. (Stevens, 2008)

Impact on Microsoft Shareholder

The merger between Yahoo and Microsoft would not have as much positive impact on its shareholders since it’s already better in terms of market than yahoo. The only positive impact would be as a result of competition that their merger would give to Google that would increase the value of their shares. There has been an argument against the merger where part of it is based on some non-profitable calculations. If the deal of purchasing yahoo is distributed to Microsoft shareholders in the form of dividends, each shareholder will receive about $5 for each share. Further calculations show that 1000 shares would earn a Microsoft shareholder about $5000, which would have been better than buying out yahoo. Research has shown that yahoo and Microsoft do not have complementary product lines, and therefore, their working together would not have as much development or competitiveness, therefore not being in a position to add value to Microsoft shares. Furthermore, Microsoft has a history of losing the battle when it started MSN, which was to compete with AOL, and this failure was interpreted as a waste of Microsoft’s shareholders’ money. (Verstegen, 2008)

The financial condition of both corporations

According to (EbscoWeb), Yahoo has presented a great improvement in its financial status where accelerated growth has been recorded. The reason for this growth is its possession of a large number of consumers as well as an operating model that is profitable. However, in 2008, Yahoo’s revenue rose by 3%, which gave a total of 7.2 billion, which was not very satisfying and is struggling to acquire more growth. Yahoo has consequently hired a new CEO called Bartz, who is supposed to revive the company as it undergoes a transformation from its buyout offers by Microsoft and Google’s advertising partnership. Microsoft’s revenue has also increased, which has been driven by revenue from windows and SQL servers. This growth was affected by exchange rates of foreign currency, which went up to 222million dollars, an equivalent of 1%. However, its operating income has encountered a decline showing expenses that are related to headcount as well as revenue costs. In the previous four quarters, revenue for Microsoft amounted to 2.8 billion dollars, but 949 million dollars were lost. Combining Microsoft with yahoo will result in 9.8 dollars in revenue with a net loss of 289 million dollars. (Stevens, 2008)

Reasons Why a Merger Would Be More Profitable Than Independent Operations of the Two Companies

The merger would at some point bring profit to each of the two companies bearing in mind that both have improved a lot in the provision of mobile services. Their combined effort would result in even better mobile services. Another reason is that it’s difficult for either of them to fight Google alone so as get more popularity. For example, Microsoft has used a lot of time and funds in a project of live services, which has backfired for not gaining users’ interest which contributes to the lack of satisfaction with Microsoft’s strategy. On the other hand yahoo as impressive as it is has put forward its online services which have been rated among the best but users don’t seem to care much. Though Google is not as appealing, it has shown continued growth with users flocking to get access to its services. Therefore it has occurred that since yahoo and Microsoft are finding it difficult to venture into new areas and attract more users, a merger would be the solution for both companies. A merger would also lead to more profits as everyone would want to try on their products, hoping that they will be of better quality than when operating independently. If Microsoft decides to make good use of yahoo’s services which includes email services, online news as well as tools for website businesses, their combination would be sure of producing a wide variety of services. When Microsoft manages to purchase yahoo, it will be in a position to get more aggressive, especially due to the use of advertising services that are search-driven taking up a bigger share of advertising budgets all over the world. However though it would be hard for this merger to outdo Google in the market, their combined efforts are likely to lessen the gap between them, resulting in more profit. (Pedrycz, 2008)

Potential Pitfalls

The yahoo-Microsoft merger would otherwise not be as profitable since neither of the two companies have shown much potential or plans to do interesting things in the market. Yahoo and Microsoft do not have complimentary services and cannot therefore become creative enough as a combined entity. The merger could be better described as a waste of shareholder’s money which might even ruin the merging companies. Among the various areas that would experience failure in case of a merger are mails. If people are given an opportunity to choose the kind of mail system they would prefer using, most of them would choose yahoo’s mail older version of Google’s mail. This is because the current updates for MSN as well as yahoo are cluttered, crappy and spam ridden which would not change much if they merged. The result of a new service by the merger would be a great confusion in the market. (Verstegen, 2008)

It has also been argued that each of the companies has reasons why it should operate solely where Microsoft has online services that are very stable, 70,000 employees who are ready to see it prosper as well as an operating system and software that is equally profitable. On the other hand, Yahoo also has a search market that is competent as well as good services of online photo and email client. Independently, these companies are somehow doing well and since a merger does not look as promising, it would be better for each of them to remain solo. Microsoft has shown less competition in the area of advertising while yahoo has been competitive though showing some signs of losing the battle. So if yahoo agrees to be purchased, it will be equated to giving up, which would not be a pleasant and wise thing to do. (Pedrycz, 2008)

Conclusion

It’s so evident that Microsoft as well as yahoo have so much capital independently and should take time to reevaluate themselves instead of merging. The decisions of the two companies’ merger have been based on fear of Google rather than being focused on their competencies as well as areas of strengths. Yahoo which has been Google’s competitor should observe how Google works to achieve success and try to apply those skills appropriately instead of merging. Furthermore, Karsten Weide has opposed the deal by saying that yahoo’s culture has made people regard the presence of the internet to change and improve the world, which has seen yahoo change to a more cooperate entity. Therefore, Yahoo views Microsoft as an aggressive ,big company that concentrates with foundation issues and does not interest itself with building a better world, showing that their interest vary a great deal and would not succeed if they combined. (Stevens, 2008)

References

Pedrycz W. (2008): A dynamic data granulation through adjustable fuzzy clustering: Elsevier pp. 45-49.

Stevens R. (2008): State of the nation in data integration for bioinformatics: Elsevier pp.23-26.

Verstegen I. (2008): The Virtual Window: From Alberti to Microsoft: MIT Press pp.37-43.

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