Terry Connelly is dean of the Ageno School of Business at Golden Gate University and is frequently quoted on business, financial, and economic issues by Bay Area local, as well as national, news media.
Thank you Microsoft for rescuing us all from a downer of a January jobs report last Friday, giving us time to reflect on the fact that the main thing we really know about that jobs report, like the 4th quarter 2007 GDP estimate released a couple days earlier, is that it is probably materially wrong, if recent history is any guide.
Indeed, the same news release corrected the modest 18,000 net job additions count first announced for December to over 80,000 (about 400% outside what the political polsters call the “margin of error”)!
Funny how we have much tougher standards for political pols than supposedly useful government data, on release of which we are prepared to make and lose billions in market value. Imagine how the markets would have reacted earlier in January to a December jobs report showing an 80,000 gain; would we have started the year with the same sharemarket swoon? So let’s see next what the update in late February will bring to the aenemic GDP estimate. Remember that most actual data for December was not referenced in the .6% positive figure.
But back to the Microsoft bid for Yahoo to challenge Google’s search and ad dominance — or, as this event is otherwise known around these parts, the Stanford intramurals! It has been raining a bit much in Silicon Valley lately, and we can use some good indoor games. (As intrmurals go, this one could be the Super Bowl!)
Now of course it’s a great time for MSFT to bid a 60%+ premium for YHOO with its share price dangling in the teens at the possible onset of a recession. YHOO can’t really blame its problems on the subprime mortgage crisis, but maybe the bid does signal something of a bottom in terms of big-cap technology and interet share prices, which have suffered in the recent market sell-offs linked to the mortgage and credit mess.
In the short run, there are serious competitive disruptions inherent in a hostile bid which, while even at a big premium, really provides only a quiet exit for those folks unlucky enough to enter the YHOO picture at around $28-30 per share not so very long ago. More thrilling indeed would be the prospect of a competing bid or two, but who has MSFT’s cash and market leverage to compete? But also YHOO turned down an approach at around $40per share not so very long ago, and may be anxious to seek out other courses than simply owning up to a blown call.
Enter Google: not likely as a direct bidder, as they might have more trouble with the Justice Department than MSFT will face. (Indeed, the MSFT offer’s timing suggests an effort to get antitrust scrutiny out of the way before the risk of a change in party controlling the Justice Department’s merger philophy come November.) But Google has much to gain from a protracted seize-up of both MSFT’s and YHOO’s creative juices in a proxy battle and tender offer contest. Meanwhile, GOOG may be able structure a relationship with YHOO and certain of its offshore interests that could bring equivalent or better value for patient YHOO shareholders.
The question of whether that patience will be forthcoming may hinge on geography: this bid is very much a “road game” for Microsoft in terms of Silicon Valley — and we notice that Stanford’s men’s basketball team beat both Washington and Washington State this weekend — on the road!
