Hindsight is everything of course. But with the recent news of Microsoft potentially financially backing of a bid for Yahoo!, Eric Jackson of the Street proposed a counterfactual analysis of Microsoft’s last bid for the troubled search engine back in 2008. Jackson concludes that if Microsoft’s failed hostile bid for Yahoo! had succeeded, Steve Ballmer would look like a genius today.
This runs counter to the more prevalent opinion that Microsoft’s failed bid for Yahoo! was the biggest bullet the company ever dodged. In 2008, Microsoft made a bid of $44.6 billion for Yahoo!, but walked away when they countered with $57 billion. Today, Yahoo! is worth $33 billion in market capitalization, so from that standpoint, it clearly looks like the deal would have been a loser all around. But Jackson goes on to say if you included the shares of Alibaba, which Yahoo! has since sold in 2012, today’s valuation of Yahoo would be worth $95 billion.
So Jackson concludes that if Steve Ballmer had a good inkling of the future value of Alibaba, and was essentially bidding on Yahoo! for its shares in Alibaba, then he would look like a genius. But by Jackson’s own admission, it’s not clear if Ballmer completely knew how well Alibaba would do. He did say though that several sources who were at Microsoft around the time of the deal claim they knew how special of a company Alibaba was.
Counter arguments can be fun, but this one is a little hard to swallow. And others agree:
@RealDarrenCohen wow. everything about that article is completely delusional! :)
— Mary Jo Foley (@maryjofoley) March 29, 2016
The financial argument has merit on the numbers alone. But the logic also assumes it would have been perfectly acceptable for Steve Ballmer to be using Microsoft’s resources to act as a private equity company of sorts, purchasing Yahoo! to gain shares in Alibaba. And in the meantime, Microsoft would have picked up a struggling tech company that would need to be managed and righted, all the while consuming Microsoft’s time and energy when they were struggling in competition with Apple and Google.
If the 2008 bid had succeeded, Microsoft would have had another mess on its hands to clean up, and potentially write down in the future, all the while losing focus on its key businesses. It is hard to make the argument that the after tax income from selling Alibaba’s shares in 2016 would make up for nearly a decade of management headaches and troubled assets on Microsoft’s balance sheet from the hypothetical 2008 deal.Further reading: Acquisitions, Alibaba, financials, Mergers, Microsoft, Steve Ballmer, Yahoo