14 DAY TRIAL // Microsoft is a tad short on cash for its marriage with Yahoo, and as such will have to consider borrowing the money it lacks. But it will apparently be all worth it, as it is already slapping Google around. With its eyes on a healthy piece of the online advertising market which is estimated to grow from $40 billion in 2007 to no less than $80 billion in 2010, Microsoft announced on February 1, 2008, an acquisition proposal of Yahoo for no less than $44.6 billion.
In this context, the Redmond company is getting ready to pay today, more than half the projected worth of the online advertising business in a couple years from now. The offer presented to the Yahoo Board of Directors was deemed unsolicited, but was accepted for consideration. Google went one step further and labeled the bid hostile, pointing a finger at Microsoft and accusing the company of aiming to kill innovation and openness on the Internet.
Microsoft has traditionally sat on a pile of money. The Redmond company has always been the adept of a strategy focused on small acquisitions, and last year's takeover of aQuantive, for $6 billion, was perhaps the exception that indicated a shift in the company's tactics, and a new found affinity for big time buyouts.
Microsoft Chief Executive Officer, Steve Ballmer, indicated that the Redmond company had been discussing a potential acquisition of the Sunnyvale Internet giant with Yahoo's Board of Directors since late 2006. In February 2007, a private offer from Microsoft was turned down, following closed door negotiations. One year later, the Redmond company came out in the open with the $44.6 billion acquisition proposal for both cash and stock.
But despite Microsoft's financial resources, this might very well be the first time in its history that the company will go into debt in order to raise the money it's missing. "If you look at the cash component rather than focus on the stock component, that's going to be over $20 billion worth of cash," revealed Chris Liddell, the Microsoft's Chief Financial Officer. "We could fund most of that through our cash holdings, but it's likely we're actually going to borrow for the first time."
Microsoft is opting for a mixture of the cash on hand plus debt for Yahoo, but the company is not going to draw down its entire cash pile available, approximately $21 billion. Microsoft spent no less than $31 billion in share buybacks and dividends in fiscal year 2007. But just the sight of Microsoft and Yahoo merging has made the ground under Google shake.
Google shares are down, having dropped below the $500 mark. Google's shares closed Monday at just $495.43. The fact of the matter is that this is the first time that the Mountain View-based search giant's shares have gone under the $500 in the past half year. And it's all because of the Microsoft - Yahoo slap. And overall, the value of Google shares is down, from an apex of $747 last November.