Two Battered Behemoths, One Bold Bid

Many online pundits see Microsoft's move on a vulnerable Yahoo! as a bloated bungle, but some say the combo would be formidable

by Bruce Meyerson and Moira Herbst

Even in the know-it-all blogosphere, tech industry commentators were taken aback by Microsoft's (MSFT) unsolicited bid to acquire Yahoo! (YHOO). Though the gossip mill has long speculated about such a marriage, no one predicted it would happen so soon.

While investors frowned upon the offer—Microsoft shares tumbled 6.6% on Feb. 1 to $30.45—the tech world was split on whether the deal would mean a brighter or dimmer future for any agglomeration of Microsoft and Yahoo.

The Pessimists

There's plenty of critique of the potential deal. BusinessWeek media columnist Jon Fine, for one, says a takeover wouldn't produce miracles for Microsoft. "Ah, Microsoft-Yahoo," he writes. "It's truly touching to me how companies are forever believing that if you mate two dogs, you can make a pony." Why not? For Microsoft to succeed it would have to own traffic—not just ads. "Microsoft's got a long and rocky history when it comes to playing in the content space," says Fine.

Aaron Katsman at AOL's (TWX) Bloggingstocks.com also sees potential management troubles—not to mention shareholder pain—if Bill Gates' baby absorbs the troubled Yahoo. In his entry, titled "Microsoft—What are you thinking?" Katsman asks: "Why pay 60% more than the market price for a company that admittedly has all kinds of problems and no one else wants?" He also predicts troubled days ahead for Microsoft stock: "Just when investors had thought they may just make some money with their Microsoft stock, this news comes along."

Andy Beal at Marketing Pilgrim has a similar take: "Will buying a company that has failed to stand up to Google (GOOG) in any way help Microsoft, which has equally poor performance? Do two losers make a winner?" Beal also notes the potential for one big, unhappy Redmond-Sunnyvale marriage if the deal actually goes through.

"[T]his could become a hostile takeover very quickly," Beal writes. "Microsoft CEO Steve Ballmer is already taking shots at Jerry Yang et al's attempts to revitalize the company, saying, 'A year has gone by, and the competitive situation has not improved.'"

Others figure regulatory hurdles will doom a marriage. "If anyone thinks the Microsoft Corp.-Yahoo Inc. deal is getting past the EU regulators, they're crazy," writes John C. Dvorak of Dow Jones' (NWS) MarketWatch. Joseph Weisenthal of PaidContent.org, echoes such regulatory worries: "Expect regulators to take this purchase seriously, particularly on the other side of the Atlantic."

Other analyses are downright damning—both of the potential deal and of the tech industry generally. "Coupled with [Thursday's] disappointing earnings report from Google, the dealmaking points to a new phenomenon: the first economic slowdown of the Web 2.0 era," writes Slate.com's Daniel Gross. "The darkening outlook for online advertising and e-commerce…is likely behind Microsoft's bold bid for Yahoo."