Some Microsoft Corp shareholders say the software maker's 44.6 billion U.S. dollars bid for Yahoo! Inc may backfire and reduce its ability to compete with Google Inc in Internet consumer services and advertising.
"This is a stupid deal, and I'm not happy," said Jane Snorek, who helps manage more than 70 billion dollars in assets at First American Funds in Minneapolis. She told Bloomberg News that the firm began selling much of its Microsoft position on Thursday when the stock dropped 6.6 percent, the most since April 2006. "I'm expecting slow market-share erosion from Microsoft and Yahoo!"
Microsoft announced an unexpected 44.6-billion-dollar bid for Yahoo Friday. Some Microsoft Corp shareholders say the software maker's bid for Yahoo! Inc may backfire and reduce its ability to compete with Google Inc in Internet consumer services and advertising. (Xinhua/Reuters Photo)
Microsoft Chief Executive Officer Steve Ballmer is attempting the biggest technology takeover on record after his own efforts failed to narrow the gap with Google.
Acquiring Yahoo! would still leave Microsoft with a smaller share of the Web search market, and Ballmer would face the distraction of combining the businesses, said Colin Gillis, an analyst at Canaccord Adams in New York.
"Sergey and Larry are going to have no problems sleeping," Gillis said, referring to Google founders Sergey Brin and Larry Page. "I don't see them tossing in their beds tonight."
Gillis recommends buying Google shares, has a hold rating on Yahoo!, and doesn't cover Microsoft. He doesn't own shares in the companies.
The 31-dollar--a-share bid of cash or Microsoft stock is 62 percent more than Yahoo!'s closing price on Thursday. Microsoft, based in Redmond, Washington, fell 2.15 dollars, to 30.45 dollars on Friday in Nasdaq Stock Market trading.
Ballmer, 51, has presided over a 44 percent drop in Microsoft shares since taking over as CEO in January 2000.
Yahoo!, which reported its eighth straight quarter of declining profit this week, had dropped 18 percent this year before the offer was announced. The shares rose 9.20 dollars, or 48 percent, to 28.38 dollars on Friday.
Holders of Yahoo! stock would be able to choose to take 31 dollars in cash or 0.9509 of a Microsoft share for each Yahoo! share. Microsoft will pay for half the purchase with cash and half with stock, the company said.
Yahoo!, based in Sunnyvale, California, has also failed to break Google's hold on the market, losing Internet search users and share of the online ad market. The stock had lost almost half its value in the past two years before the deal was announced.
"Yahoo! has struggled mightily to compete against Google," said Dave Stepherson, a fund manager at Hardesty Capital Management in Baltimore, which holds about 281,000 Microsoft shares in its 650 million dollars under management. "That is not going to change just because they're pairing up with Microsoft."
The price is "incredibly expensive," and Microsoft may have done better by making smaller purchases to build out its own business, he said.
Ballmer himself told analysts in July 2006 that buying Yahoo! wouldn't help Microsoft improve its search business, because only Google has a better quality product than Microsoft.
