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Originally Posted by DigitalDude
Oh! so you would advice google to use debt financing to buy a company of Yahoo's size? gr8.. now you are the one who is brave.  |
Ever heard of
Leveraged Buyouts?
As you correctly said, Google can't take over Yahoo but that's just because of regulatory restrictions. The Yahoo-Microsoft deal an immensely interesting takeover bid. I love tracking it.
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You dont need to be brave to predict the death of a company. A little common sense, familiarity with market situations, and the attitude of the company put together gives you various clues.
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Could anyone predict the run on
Northern Rock, or the fall of
Bear Stearns?
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But If I tell you that I'll pay you 100 rupees for your computer (which no other person is interested in buying) worth 105 rupees, and if you ask me for 120 rupees, then you are greedy.
IMO yahoo is just haggling and seeing if MS would raise its bid.. but it cannot last long.. yahoo's share price is pointing towards south but not as steep as MS expected it to when they sent the second letter...
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Welcome to the world of valuations.
Valuations are often done using various techniques, the most common being
DCF analysis with a combination of
Comps. I'd have loved to link you to my lecture slides instead of Wikipedia, but I'm not allowed to do that. Anyways, often, a company launching a hostile bid isn't or can't be sure of the Future Cash Flows of the company it
intends to take over. So, they estimate these FCFs on the basis of market information and whatever insider information they can gather. In a friendly sale/merger, the situation is different. But, I'm sure Yahoo wouldn't have released information on its R&D program, which can have a significant effect on its future cash flows. So, while a 30% premium on the stock price might seem enough in the eyes of Microsoft and its bankers, the same might not be the case with Yahoo. They rejected this offer primarily on the basis of strategic concerns, but valuations played their part too.
Stock prices can be deceptive my friend. Very deceptive.
Whatever happens, there will be some nice bonuses for folks at Blackstone (oooo.. Private Equity!) and Morgan Stanley (MS advising MS) who're advising Microsoft; and at Lehman (I swear, don't they need their commission!) and Goldman who're advising Yahoo.
Though with Goldman advising them, I'd give Yahoo a good chance to get out of this situation.