(1) The Reason to A cquire Yahoo

(2)

(3)

(4)

(5) Abnormal Return of C ompetitors

The below chart shows abnormal return of Google and other competitors for Yahoo (see exhibit (5)-1). While the Google's abnormal return was negative on the announcement date, some of other firms in Yahoo's industry had positive return. We would like to discuss the reason about this result from two sides, Google and other competitors as following:

² Google:

The reason why Google's abnormal return dropped is that this deal would create the most formidable competitor for Google in the searching engine and web advertising business. As a result, the market thought Google's profitability would be decreasing because the intensity of competition would increase.

² Other competitors:

According to the New York Times on February 1, “With its potential to redraw the battle lines in the struggle for Internet domination, Microsoft's $44.6 billion bid for Yahoo may end up putting other companies in play .” Other companies indicated AOL owned by Time Warner, News Corporation and so on. Hence, investors would buy other competitors' stock on speculation like this. In consequence, their stock price would increase.

[ Exhibit (5)-1 : Abnormal return on February 1, 2008]

Stock return

Market return (NASDAQ)

Abnormal return

Google

-8.58%

0.98%

-9.56%

TWX

2.42%

0.98%

1.44%

NWS

3.20%

0.98%

2.21%

VCLK

6.73%

0.98%

5.75%

INSP

4.94%

0.98%

3.96%

(Source: Yahoo finance)

(6) The Cross- Shareholding

According to Appendix II, more than half of the top 15 institutional investors for Microsoft and Yahoo have shares in both of them. Theoretically their objective is to hold broad portfolio of investments with the view to spread risk and to maximize their overall performance. Hence, they would require the highest possible price if they owned only Yahoo. However, in this case, they cannot be up-front to state that Microsoft pay more due to the cross-shareholding i.e. if higher bid boosts Yahoo stock price, it cut down Microsoft stock price.

The transaction value of this deal for them should be based on the combination of cash from Yahoo's stock and the value of Microsoft. In fact, while Yahoo's stock price has increased from 19.18 on the announcement date to 29.87 as of February 11, 2008, Microsoft's stock price has fallen from 32 .6 to 28.21. As a result, the total of eight cross-holding largest shareholders lost about US$2.6 billion (see exhibit (5)-2). This is because many large institution shareholders, those own both firms' shares, have bigger stakes in Microsoft than in Yahoo.

Basically it is not unusual for institutional shareholders to hold both firms involved in mergers. In cases like this, institution investors would be more concerned about the overall performance of their fund than individual performance in the voting behavior.

[Exhibit (5)-2: The cross-holding Institutional Shareholders]

(unit: thousand)

Yahoo

Microsoft

Shareholder

Rank

Shares

Change

(Profit/loss)

Rank

Shares

Change

(Profit/loss)

Total

Change

Capital Reserch Global Investors

1

146,926

1,570,639

4

253,284

-1,111,918

458,721

Capital World Investors

2

135,957

1,453,382

3

271,443

-1,191,634

261,749

State Street Global Advisiors

4

48,474

518,183

1

294,619

-1,293,378

-775,195

Vanguard Group, Inc.

5

43,140

461,171

5

252,584

-1,108,845

-647,674

Barclays Global Investors, N.A.

6

42,582

455,199

2

283,000

-1,242,370

-787,171

Fidelity Management & Reserch

12

16,642

177,902

6

133,435

-585,778

-407,876

TIAA-CREF

13

14,175

151,534

9

74,589

-327,448

-175,914

T. Rowe Price Associates, Inc.

14

13,832

147,863

7

119,625

-525,155

-377,292

(Source: Yahoo finance & Course material)

Source: Essay UK - http://turkiyegoz.com/free-essays/finance/microsofts-bit-for-yahoo.php


Not what you're looking for?

Search:


About this resource

This Finance essay was submitted to us by a student in order to help you with your studies.


Rating:

Rating  
No ratings yet!

  • Order a custom essay
  • Download this page
  • Print this page
  • Search again

Word count:

This page has approximately words.


Share:


Cite:

If you use part of this page in your own work, you need to provide a citation, as follows:

Essay UK, Microsoft's bit for yahoo!. Available from: <http://turkiyegoz.com/free-essays/finance/microsofts-bit-for-yahoo.php> [17-12-18].


More information:

If you are the original author of this content and no longer wish to have it published on our website then please click on the link below to request removal:


Essay and dissertation help

badges

 
Siti Badriah Lagi Syantik Versi Dj | Common App Essay | DJDONI Perú