The Yahoo!/eBay merger has long been rumored and today gets another whirlwind, but because it’s so logical, we don’t think either side will have the common sense to pull it off. While it’s easy to mention a few of the obvious reasons for the deal: [Yahoo!’s enormous user base] x [eBay’s auction database + Paypal Platform] = Mucho Dinero… the main reasons for this deal are actually:
1 - the totally complementary and non-overlapping businesses: Yahoo! is an ad play, eBay is an e-Commerce play;
2 - the management fit: if you consider that over 50% of Yahoo!’s senior management has left and eBay is known for having a strong bench and as a result the new entity won’t have 2 Snr. VPs of everything;
then you have to ask why this deal won’t happen?
Can you imagine Sue Decker and Meg Whitman running two of the strongest brands in all of Silicon Valley?
Can you imagine a board that boasts both Pierre Omidyar and Jerry Yang?
That would definitely be something.
But back to our point, this deal would not be an acquisition, but rather a merger of equals and I don’t think Yahoo! shareholders would view this as a win.
A quick tale of the tape:
As you can see, the merged company would become a ferocious competitor to any company, be it Google, MSFT, IAC, News Corp.’s FIM or Time Warner’s AOL… but the problem is, shareholders of Yahoo! give up 54% of their company to own something that is still not guaranteed to boost shareholder value in the long-run. Bear in mind, for example, that eBay’s core transactional business is slowing and Paypal will be larger even by its own management’s admission.
And the merged entity is still half of Google’s market cap, though it would boast enough cash to start making more acquisitions, etc., if that was something they wanted to do.
The main strength is that Yahoo! is largely an advertising business, eBay is a transactional business, so the revenue streams would be diversified quite a bit but the P/E and P/S multiples might go down to due eBay’s slowing business.
I’m a Yahoo! shareholder and I’m not sure this would really work with most shareholders, who would probably prefer the immediate payoff of a $50B offer from MSFT.
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