Q
Quiffie
It's just possible that Microsoft, Yahoo, AOL, and other would-be
GOOGLES will NEVER get over the way Google vaulted over them to
capture the best of Internet business!
But it ALSO seems these also-rans will not give up trying to catch up
to their online "master."
Hint: Forget buyouts and mergers.
--------------------
"Little Reason To Shout Yahoo!"
By Allan Sloan
Business
The Washington Post
Tuesday, February 5, 2008; D01
Most of the talk about Microsoft's hostile offer for Yahoo has focused
on whether the deal could tip the scales in the battle for Internet
dominance. Today, I'd like to steer the conversation to something a
little more basic that almost everyone has overlooked: the numbers.
To give us some perspective, I went to Joe Rosenberg, one of Wall
Street's biggest hitters, to get his take on the deal. Simply put, he
thinks Microsoft's offer is nuts. "This is like a person who's
completely lost his mind," Rosenberg told me. "It's absurd. They're
not going to earn anything like a reasonable rate of return on their
investment in Yahoo. It just doesn't make sense."
Rosenberg's opinion matters. As chief investment strategist of the
Loews conglomerate, which owns a piece of Microsoft, he is one of the
most influential voices in the financial world. His criticism of the
software giant in a Barron's interview two years ago was a big factor
in sparking the $40 billion buyback program that Microsoft launched in
the fall of 2006.
Before we continue, a disclosure: Loews is one of my biggest
individual holdings, which means I have money riding on Rosenberg's
investment acumen. Now back to the main event.
Rosenberg's biggest beef with the deal is that it would hurt the value
of Microsoft shares. "This deal would do more harm to Microsoft
shareholders than any of its competitors can do to it," Rosenberg
said. "The company has lost sight of its principal focus, which is to
produce value for shareholders."
Until the Yahoo bid surfaced, Rosenberg was predicting that Microsoft
would earn almost $2 a share in its current fiscal year, rising
steadily to more than $4 a share in four years. (In his view,
Microsoft's sales to "developing markets" such as China, India and
Eastern Europe will soar.) So at $32 a share -- its price before news
of the Yahoo offer drove its stock down sharply Friday -- Microsoft
looked cheap to Rosenberg. Now, he fears, Microsoft may be making the
same mistake as two other companies that did large but ultimately
unsuccessful high-tech takeovers.
No, he's not talking about the 2000 deal that combined America Online
with my employer Time Warner, which many people have cited as a
cautionary tale for Microsoft-Yahoo. In Rosenberg's opinion (and mine)
that transaction is not a good comparison. Why? Because America
Online's purchase of Time Warner turned out great for AOL
shareholders, whose stock fell far less than other Internet issues
when the bubble popped. The deal was disastrous for the sellers -- the
old Time Warner stockholders -- who had the value of their shares
eviscerated.
The real parallels to Microsoft-Yahoo, says Rosenberg, citing his 47
years on Wall Street, are two largely forgotten disasters: Xerox's $1
billion purchase of Scientific Data Systems in 1969 and AT&T's
$7.5 billion purchase of NCR in 1991. In both cases, the acquiring
company paid top dollar for a firm whose products and technology
rapidly became obsolete.
Rosenberg doesn't pretend to be a tech maven, but he says it's clear
that the market -- which sent Yahoo's stock down 45 percent from
October through last Thursday -- is saying something negative about
Yahoo's businesses and prospects. Microsoft, Rosenberg says, would be
well-advised to listen.
Should Microsoft buy Yahoo, Rosenberg says, he, like other folks
looking at this deal, expects Microsoft and Google to engage in price
wars in the search and advertising businesses. But Rosenberg takes
those expectations one more step: Such a price war would hurt Yahoo's
already anemic profit margins, he says, making a Microsoft purchase
even more problematic. Microsoft's future free cash flow per share
would be substantially higher if it buys back its own shares, he said,
rather than buying Yahoo by issuing about $23 billion of new stock and
spending a net $14 billion or so in cash. (That cash number takes into
account the approximately $8 billion of cash and marketable securities
that Yahoo owns.)
Rosenberg says he's not trying to hurt Microsoft; he's trying to help.
"They don't realize that by criticizing this deal, I'm trying to do
them a favor," he says. And, of course, to do Loews a favor, too.
Off-Track Stimulus
Now here's a look at another proposal that has left me scratching my
head. The economic stimulus package slogging its way through Congress
includes a measure that would expand by 75 percent the maximum size of
the home mortgages that Fannie Mae and Freddie Mac can buy, to just
under $730,000 from the current $417,000.
Foolish me. The conventional wisdom is that stimulus is supposed to be
"timely, targeted and temporary." But, by that measure, unleashing
Fannie and Freddie would go, at most, 1 for 3. That's because even
though it may be timely, it's targeted at people like me with
expensive homes who don't particularly need help. And even though the
loan limit is supposed to revert to $417,000 next year, that's
unlikely to happen, given the realities of Washington and those
companies' political clout.
If we're going to unleash Fannie and Freddie, which are so big that
serious problems at either could threaten the financial system, we
should at least strengthen regulation of them. Alas, stronger
regulation isn't part of the fast-track stimulus legislation.
The stimulus package would add "significant new responsibility to
these companies at a time when they're really stressed," says Jim
Lockhart, director of the Office of Federal Housing Enterprise
Oversight, which regulates Fannie and Freddie. "Without stronger, bank-
like powers for the regulator, this could lead to serious problems." A
statement with which, I think, any reasonable person has no choice but
to agree.
)Allan Sloan is Fortune magazine's senior editor at large. His e-mail
address (e-mail address removed).)
http://www.washingtonpost.com/wp-dyn/content/article/2008/02/04/AR2008020403403.html
GOOGLES will NEVER get over the way Google vaulted over them to
capture the best of Internet business!
But it ALSO seems these also-rans will not give up trying to catch up
to their online "master."
Hint: Forget buyouts and mergers.
--------------------
"Little Reason To Shout Yahoo!"
By Allan Sloan
Business
The Washington Post
Tuesday, February 5, 2008; D01
Most of the talk about Microsoft's hostile offer for Yahoo has focused
on whether the deal could tip the scales in the battle for Internet
dominance. Today, I'd like to steer the conversation to something a
little more basic that almost everyone has overlooked: the numbers.
To give us some perspective, I went to Joe Rosenberg, one of Wall
Street's biggest hitters, to get his take on the deal. Simply put, he
thinks Microsoft's offer is nuts. "This is like a person who's
completely lost his mind," Rosenberg told me. "It's absurd. They're
not going to earn anything like a reasonable rate of return on their
investment in Yahoo. It just doesn't make sense."
Rosenberg's opinion matters. As chief investment strategist of the
Loews conglomerate, which owns a piece of Microsoft, he is one of the
most influential voices in the financial world. His criticism of the
software giant in a Barron's interview two years ago was a big factor
in sparking the $40 billion buyback program that Microsoft launched in
the fall of 2006.
Before we continue, a disclosure: Loews is one of my biggest
individual holdings, which means I have money riding on Rosenberg's
investment acumen. Now back to the main event.
Rosenberg's biggest beef with the deal is that it would hurt the value
of Microsoft shares. "This deal would do more harm to Microsoft
shareholders than any of its competitors can do to it," Rosenberg
said. "The company has lost sight of its principal focus, which is to
produce value for shareholders."
Until the Yahoo bid surfaced, Rosenberg was predicting that Microsoft
would earn almost $2 a share in its current fiscal year, rising
steadily to more than $4 a share in four years. (In his view,
Microsoft's sales to "developing markets" such as China, India and
Eastern Europe will soar.) So at $32 a share -- its price before news
of the Yahoo offer drove its stock down sharply Friday -- Microsoft
looked cheap to Rosenberg. Now, he fears, Microsoft may be making the
same mistake as two other companies that did large but ultimately
unsuccessful high-tech takeovers.
No, he's not talking about the 2000 deal that combined America Online
with my employer Time Warner, which many people have cited as a
cautionary tale for Microsoft-Yahoo. In Rosenberg's opinion (and mine)
that transaction is not a good comparison. Why? Because America
Online's purchase of Time Warner turned out great for AOL
shareholders, whose stock fell far less than other Internet issues
when the bubble popped. The deal was disastrous for the sellers -- the
old Time Warner stockholders -- who had the value of their shares
eviscerated.
The real parallels to Microsoft-Yahoo, says Rosenberg, citing his 47
years on Wall Street, are two largely forgotten disasters: Xerox's $1
billion purchase of Scientific Data Systems in 1969 and AT&T's
$7.5 billion purchase of NCR in 1991. In both cases, the acquiring
company paid top dollar for a firm whose products and technology
rapidly became obsolete.
Rosenberg doesn't pretend to be a tech maven, but he says it's clear
that the market -- which sent Yahoo's stock down 45 percent from
October through last Thursday -- is saying something negative about
Yahoo's businesses and prospects. Microsoft, Rosenberg says, would be
well-advised to listen.
Should Microsoft buy Yahoo, Rosenberg says, he, like other folks
looking at this deal, expects Microsoft and Google to engage in price
wars in the search and advertising businesses. But Rosenberg takes
those expectations one more step: Such a price war would hurt Yahoo's
already anemic profit margins, he says, making a Microsoft purchase
even more problematic. Microsoft's future free cash flow per share
would be substantially higher if it buys back its own shares, he said,
rather than buying Yahoo by issuing about $23 billion of new stock and
spending a net $14 billion or so in cash. (That cash number takes into
account the approximately $8 billion of cash and marketable securities
that Yahoo owns.)
Rosenberg says he's not trying to hurt Microsoft; he's trying to help.
"They don't realize that by criticizing this deal, I'm trying to do
them a favor," he says. And, of course, to do Loews a favor, too.
Off-Track Stimulus
Now here's a look at another proposal that has left me scratching my
head. The economic stimulus package slogging its way through Congress
includes a measure that would expand by 75 percent the maximum size of
the home mortgages that Fannie Mae and Freddie Mac can buy, to just
under $730,000 from the current $417,000.
Foolish me. The conventional wisdom is that stimulus is supposed to be
"timely, targeted and temporary." But, by that measure, unleashing
Fannie and Freddie would go, at most, 1 for 3. That's because even
though it may be timely, it's targeted at people like me with
expensive homes who don't particularly need help. And even though the
loan limit is supposed to revert to $417,000 next year, that's
unlikely to happen, given the realities of Washington and those
companies' political clout.
If we're going to unleash Fannie and Freddie, which are so big that
serious problems at either could threaten the financial system, we
should at least strengthen regulation of them. Alas, stronger
regulation isn't part of the fast-track stimulus legislation.
The stimulus package would add "significant new responsibility to
these companies at a time when they're really stressed," says Jim
Lockhart, director of the Office of Federal Housing Enterprise
Oversight, which regulates Fannie and Freddie. "Without stronger, bank-
like powers for the regulator, this could lead to serious problems." A
statement with which, I think, any reasonable person has no choice but
to agree.
)Allan Sloan is Fortune magazine's senior editor at large. His e-mail
address (e-mail address removed).)
http://www.washingtonpost.com/wp-dyn/content/article/2008/02/04/AR2008020403403.html