MS-Yahoo and the New Media Landscape
To acquire Yahoo, Microsoft is offering nine times what News Corp paid for Dow Jones and The Wall Street Journal. If you want an indicator of just how much the media business has changed in the past decade or so, that’s a good one. And 500 million sets of eyeballs for a struggling No. 2? That’s nearly three times the audience of the major network news programs combined.
Saul Hansell on the MS-Yahoo deal:
The bid is $44.6 billion, or $31 a share, in cash and stock. Thursday, Yahoo closed at $19.18, a market value of $25.6 billion. If you take out the value of Yahoo’s holdings in other public companies—which the company estimates to be worth $14 billion or $10 a share—that means that Microsoft is offering to pay more than double the value of Yahoo’s existing business.
… Thanks to Henry Blodget’s back of the envelope spreadsheet combining Yahoo’s financials with the those of Microsoft’s Internet unit, we see that in 2009, a combined Yahoo-MSN would have revenues of $13 billion and operating profits of $1.1 billion (assuming the $1 billion in cost savings Microsoft promised). Today Google is trading at about 21 times its 2009 earnings. At that value, the Yahoo-MSN combination would be worth $23 billion in total, far less than Microsoft would be paying today.
… Let’s be clear. Yahoo does have real value. Even No. 2 in search can be profitable. And a monthly audience of 500 million is nothing to sneeze at. So any number of media companies would be glad to own Yahoo, but not at these prices. Remember, everyone’s shares are down so there isn’t a lot of inflated paper to trade for Yahoo. Microsoft has $21 billion in cash waiting around for just a day like this.