updated 04:15 pm EST, Wed February 6, 2008
Yahoo fight costs MS
Yahoo's caution in the face of an acquistion bid by Microsoft may be costing the latter company a good deal of money, one report suggests. The difficulty is that the proposed bid is half cash and half stock, with a share exchange ratio of 0.9509 Yahoo shares for each one from Microsoft. Because Microsoft's share price has fallen approximately 10 percent since the bid was announced, the average compensation for a Yahoo shareholder today would be $29.50 per share.
To avoid paying any more, Microsoft must thus hope either for a sudden reversal in its market value, or lessened expectations from Yahoo. As its stock price falls, it must adjust the exchange rate to return the take-out value to $31 per share, thus increasing dilution and giving current shareholders a shrunken portion of the merged corporation.
The original deal was valued at $44.6 billion, and may still make for one of the most expensive corporate buyouts in history, even running the risk of draining Microsoft's $21 billion in financial reserves. [via Silicon Alley Insider]