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This news was broken last night by Kara Swisher at The Wall Street Journal's "All Things Digital" and then followed up by aJournal article. Swisher made it clear in her reporting that any deal wasn't imminent.
This morning, one Yahoo! shareholder said thatMicrosoft (MSFT - commentary - Trade Now) was the best acquirer for Yahoo! and should step up to buy the company in order to keep it from falling into the hands of AOL or News Corp. This line of thought goes: 1.) the burgeoning search deal between Microsoft's "Bing" and Yahoo! is too strategic for Microsoft to let Yahoo! fall into unfriendly hands, and 2.) taking out Yahoo! at its current $22 billion market capitalization is pocket change for Microsoft.
The problem is that such a deal is going to be very complex to pull off and -- in my view -- unlikely to happen anytime soon. As such, I believe Yahoo!'s stock price is headed lower in the short term, rather than higher. Indeed, Yahoo!'s price action this morning suggests that most investors are staring at the possibility of a deal in the cold light of day.
Haven't Yahoo! investors been here before?
Here's the big problem with a Yahoo! buyout in the short term: There are too many moving parts. If you're expecting Yahoo!'s board, Alibaba.com, AOL, News Corp., Microsoft, and multiple private-equity bidders to get on the same page in the next month, I suggest you go organize world peace at the United Nations as your next task. Everyone has competing desires and price targets in mind.
The main driver of a Yahoo! shake-up is the company's stake in Chinese e-commerce site Alibaba. Most people know that Yahoo! did a deal to buy a 40% stake in Alibaba five years ago, probably Jerry Yang's biggest contribution to the company during his tenure. (It might go down as strategically even more important than his co-founding of the company. Think about that.) Alibaba has tremendous assets in China that are only going to become more valuable over time.
Most people also know that Yahoo! wants to wait to sell its Alibaba stake until after that company takes its remaining private assets public in an IPO. Alibaba, not surprisingly, would like to buy back Yahoo!'s stake pre-IPO.
What many people aren't aware of is that, under the terms of the 2005 investment, Yahoo!'s stake in Alibaba just increased to 39% from 35%. Alibaba CEO Jack Ma and his management team saw their stake drop to 32% from 36%. (Softbank Corp. retains its 29% stake.)
The former Merrill Lynch chief economist also was ahead of the pack when he raised alarms about the housing bubble in 2005 and warned of a coming recession in 2007.
Rosenberg remains pessimistic about the economy and contends that home prices could decline another 10% before they hit bottom, as you'll read in the following multipart interview I conducted with him.
You might be surprised, however, to learn that Rosenberg was an unabashed bull earlier in his career, that he believes a Keynesian approach can save the economy if done correctly, that he thinks the U.S. needs a jobs czar and that he sees the dollar rallying soon.
He's predicting gold prices will hit $3,000 an ounce in the next two years and believes a potential currency war is the biggest threat to the global economy right now.
He addressed all these topics and more when he recently sat down with me for the following wide-ranging interview.
Eric Jackson: When was the last time you were bullish?
Rosenberg: 2000. Most people know me as a permabear. I'm not. I was bullish on equities in the '80s when I was a senior economist at Bank of Nova Scotia(BNS_) and nobody cared what I thought. Then in the '90s, I was also bullish when I worked with Sherry Cooper at Bank of Montreal(BMO_) and helped [with] her book Riding the Wave about the Internet boom. It was only when I started working at Merrill Lynch in 2000 and I saw the onset of the tech wreck that I turned bearish.
In the past 10 years, I've had different shades of bearishness. This has been the time when I've gotten notoriety, so people only associate me with bearish views. I certainly have been overall underweight equities in my recommendations. I missed two very significant peaks and two significant troughs. The reality is that nobody ever got hurt from my picks.
When did you first start to get ultrabearish about what you were seeing in the U.S.?
Since the dot-com bubble we've had a series of bubbles and policy reflation, combating recurrent market deflation, which has produced all this instability. There's no question there have been massive swings along the way. I have a nasty tendency to be early to a fault. I started getting concerned about the housing bubble in 2005 and very bearish on the economic outlook in 2007.
Bill Koefoed: There are a bunch of ways that we are driving social experiences across our platforms, products and services. Xbox Live and Windows Live are obvious ones; we are doing some very interesting things with Facebook through Bing, and that will be a place to watch. We are also bringing social into our collaboration offerings, including Office 2010, and it will be a space to watch moving forward.
Steve participates in a large number of externally-facing events, such as the Windows Phone 7 launch. He delegates the investor-related activities to Peter and myself as we have the best day-to-day interaction with investors, view to the numbers and the questions that investors are asking. He obviously participates in our financial analyst meeting and meets with investors from time to time.
We are in a lot of businesses, and a lot of markets. Some of the places we are investing in today like cloud, search and mobile are emerging and critical to long-term growth. Others, such as Windows and Office have competitors, but we continue to innovate and drive increasing value to customers.
Since 2001, Microsoft has grown revenue from $25.3 billion to $62.5 billion in 2010, a CAGR of 11%. EPS has grown from $.66 to $2.1, a CAGR of 14%. Our Server and Tools business has grown to be a $15 billion business. We've grown new billion-dollar businesses: Xbox (+ Xbox Live), SQL Server, System Center, Unified Communications (Exchange), SharePoint, Developer Tools (Visual Studio), Dynamics (ERP & CRM), Online Advertising (display & search). I think that people lose sight of our ability to grow and scale.
Do you think there are any big misconceptions about your competitors in different spaces?
Google (GOOG_) has been making lots of claims when it comes to cloud computing, while businesses are continuing to buy Microsoft. Today, more than 40 million people are using Microsoft Online Services, which are available in 41 countries and regions around the world. We are tapping 20 years of productivity experience while they (Google) tap advertising experience. If you look at the traction Google has claimed - they are now backtracking. Customers and educational institutions recognize they are not prepared for business needs.
A lot of investors are still scared by the whole Yahoo!(YHOO_) hostile bid foray. They're concerned that you guys are not sure of yourself. You wanted to do the deal, then you didn't (thank goodness for investors). The concern going forward is: How are you going to look at M&A now? You haven't done any deals this year while Google has done a bunch. Is that indicative of what we can expect going forward?
We feel like we have the right partnership in place with Yahoo! that will help us gain the scale and relevancy needed to drive success in our search business. This combination now makes up for almost 30% of the U.S. search market. Not all of our acquisitions are made public, and that goes for most companies. Our philosophy on M&A has not changed; most often we look to do small acquisitions that complement our organic growth -- tuck-in acquisitions. Talent is the most important part of any deal.