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February 5, 2008 at 5:08 pm #28267DermotParticipant
Microsoft said Monday it may borrow money for the first time in its history to fund a portion of its $44.6 billion unsolicited offer for Yahoo.
Microsoft also said it expects Yahoo’s board to agree to the proposed deal quickly, but Yahoo said over the weekend that it expects to take “quite a bit of time ” to weigh all of its strategic options including remaining independent.
A source familiar with Yahoo’s strategy said it is considering a business alliance with Google to fend off Microsoft’s offer.
Microsoft Chief Financial Officer Chris Liddell said the software company may issue some debt to finance the cash portion of its 50-50 stock and cash offer for Yahoo, instead of drawing down its entire $21 billion cash pile.
“It’s likely we’re actually going to borrow for the first time,” Liddell said in an annual strategy meeting with analysts. “It’s going to be a mixture of the cash we have on hand plus debt.”
Liddell declined to say whether Microsoft was already buying Yahoo stock on the open market. He also did not give any information on what form of debt Microsoft will seek in the capital markets.
Microsoft made public on Friday its offer to pay Yahoo shareholders either $31 in cash or 0.9509 of a share of Microsoft common stock. The deal aims to create a formidable No. 2 to challenge Google’s dominance in Web search and digital advertising.
Analysts applauded Microsoft’s decision to take on debt.
“Microsoft can probably get a lower price of debt than equity,” said Kim Caughey, senior analyst at Fort Pitt Capital Group. “I’ve often wondered why Microsoft sits on the pile of cash. It doesn’t make a lot of financial sense.”
Liddell, when asked why Microsoft chose to dilute its stock instead of making an all-cash offer, said analysts need to keep the offer in perspective with the $31 billion that Microsoft spent in share buybacks and dividends in fiscal 2007.
Microsoft shares fell 26 cents to $30.19 in Nasdaq trading, while Yahoo shares rose 95 cents to $29.33.
At the same meeting, Microsoft Chief Executive Steve Ballmer said the offer for Yahoo was generous and he expects Yahoo’s board and shareholders to agree to the buyout quickly.
“We trust the Yahoo board and the Yahoo shareholders will join with us quickly in deciding to move down an integrated path,” Ballmer said.
According to a source familiar with Yahoo’s strategy, the company is mulling a business alliance with Google to rebuff Microsoft’s proposal. It has also received preliminary contacts from media, technology, telecommunications and financial companies, another source close to Yahoo said.
Microsoft said combining with Yahoo would speed up the process of building a company capable of capturing 40 percent of the digital advertising market. Ballmer noted, however, that if the company was successful in its bid, it would continue to invest in building the business.
“We are on a path–we were on a path and we will stay on that path regardless,” Ballmer said.
Redmond, Washington-based Microsoft emphasized that it expects to see strong growth from most of its business units. Liddell said he expects Microsoft’s revenue to grow at a double-digit percentage in the coming fiscal year starting in July despite a potential U.S. economic slowdown.
Analysts, on average, forecast Microsoft’s revenue to grow 10 percent to $66.4 billion in fiscal 2009 from an estimated $60.2 billion in the current year, according to Reuters Estimates.
Microsoft also said its first major update to Windows Vista was released to manufacturing. Usually, large organizations wait for the first major update before deploying a new operating system.
The release, known as Service Pack 1 (SP1), will contain improvements in security, reliability and performance. SP1 will be available in mid-March through Windows update in English, French, German, Spanish and Japanese.
Source: Reuters
Story Copyright © 2008 Reuters Limited. All rights reserved.February 5, 2008 at 7:40 pm #166752Jeff HesterKeymasterI liked this cartoon, which kind of shows the business impact (at least from a search standpoint):
February 5, 2008 at 10:49 pm #166755DermotParticipanthaha, that is a funny one
February 5, 2008 at 10:54 pm #166753Jeff HesterKeymasterI like the tiny little AOL fish.
Seriously, Google is now the Goliath. Microsoft and Yahoo combined do not equal Google. It’s a little frightening that one company “owns” so much of the market.
February 6, 2008 at 12:05 am #166756YahooliganMemberMicrosoft doesn’t have the brand loyalty of Yahoo, at least not for their web sites. Google IS the new 800 pound gorilla.
February 6, 2008 at 3:04 am #166757PhilipModeratorGreat cartoon, Jeff! It looks like Google now is aiming for total world domination. Fortunately their interests are not in the OS market, otherwise Microsoft will have a very strong adversary breathing down their necks.
February 8, 2008 at 8:10 am #166754DavidParticipant@Philip 226340 wrote:
Great cartoon, Jeff! It looks like Google now is aiming for total world domination. Fortunately their interests are not in the OS market, otherwise Microsoft will have a very strong adversary breathing down their necks.
Probably not. Any “new” operating system has to somehow overcome the challenges of software and hardware support. This is exactly why Linux is an utter failure in the consumer and enterprise desktop market. It takes more than smart engineers at one company to build something great. You need the support of developers all over the world, and–more importantly–something so innovative and powerful that it can sway users and corporations to switch. This simply won’t happen, Apple has taken years to get where it is, and even OSX isn’t really a viable option. Google isn’t that great, they just have a monopoly on search technology, even though Live and Yahoo search is almost as good, they weren’t first, and can’t compete on the same level.
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