Well, it’s happening. The cycle continues. As more and more people are receiving pink slips, the evolution of business cycles enters a new phase: a bunch of YHOO staffers with more experience than they know what to do are leaving. A very small few will launch new businesses, some will enter established corporations, a handful will join startup companies on the rise.
When I started Mojo Supreme, it was because I wanted to hire people and build something big. I no longer have to think about it, I can actually do it. So, if you have left YHOO or simply looking for a gig, check out what we do and drop me a line.
Check out our flagship property at WatchMojo.com but more importantly, look at all of the things we’ve got brewing under the hood in each nook and cranny of the Mojo Supreme company. As I said, we’re looking for a few good men and women. So if you are looking for a new challenge, drop me a line at ash@mojosupreme.com.
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WatchMojo NewsletterViacom has some of the strongest brands around. But these days, the only thing that is stronger than their brands is the foul smell emanating from their strategy’s skid marks. I should probably be praising the virtues of Viacom’s strategies (note: plural) because it’s the kind of company that might one day want to acquire a company like WatchMojo.com, but who are we kidding, Viacom is all over the place (full disclaimer: it’s only fair to admit that I actually contacted them in 2006 about a strategic investment in WatchMojo.com when their rival News Corp. was suing me for breathing - today, News Corp. is a partner of ours by virtue of WatchMojo.com providing video to their MySpace TV unit - I know, go figure).
Anyway, speaking of smells, media companies ought to take a cue from Apocalypse Now, a movie in which Airmobile Infantry Colonel Kilgore declared “I love the smell of napalm in the morning… It smells like… victory” following a nearby napalm strike.
Apocalypse Now was distributed by Paramount, which is incidentally owned by Viacom. That’s probably just a coincidence, because Viacom has had very few victories to speak of.
For a company as rich and well-positioned to dominate online, there’s nothing victorious smelling about Viacom’s strategy. Let’s count the many ways.
Viacom bought iFilm for a mere $49M. They bought Atom Entertainment for $200M. Between iFilm’s prowess in videos and Atom’s in animated movies, Viacom ought to be cleaning house in broadband entertainment, but all they seem to have to showcase is a disastrous $1B lawsuit against Google, who has more money than God.
Well, maybe not God, but at least more money than Viacom. Most importantly, as Viacom’s programming becomes forgotten and stale (thanks to an ill-fated writers’ strike where they showed why media moguls are media moguls), YouTube today commands the world’s attention when it comes to web video.
Today Viacom is brandying a new strategy. We won’t even take the time to dissect it, because come springtime - you know, when successful companies smell napalm - Viacom will have changed it and will be hawking something else.
Related:
- Viacom messes up MTV, loses MySpace
- Viacom vs. CBS - what was Sumner Redstone thinking
Trying to make sense of the stock market is not an easy thing.
Today was probably the first day I was flat-out wrong: I said YHOO’s stock will nudge pretty darn close to $31, but in the end, it was down a few pennies. Why?
I still think that this MSFT/YHOO deal will close at $50B, up from the initial $44.6B offer. Last night, MSFT replied to YHOO’s “pass” with “full and fair”. But with the never-ending rumors (which we don’t buy) of other hookups and hail marry scenarios, I think MSFT itself wants to nip this in the bud, fast.
From my perspective, that set a floor price of $31. In other words, YHOO investors got a sense that yes, MSFT can up its bid to sweeten the offer, but it won’t go as high as $40/share. Maybe $36, probably $33 or more…
Today Legg Mason came out and said “up the bid a bit, Bill, and we have a deal”. Thus further cemented the belief by MSFT and YHOO shareholders that a deal will take place, and it will be somewhere between $31 to $36. What I think happened today is a lot of long time holders of YHOO threw in the towel and realized that the upside might be a few dollars per share, but it won’t be $10-11 (relative to the current $29).
Some major holders (be it institutional investors that are mutual funds or hedge funds) can still make a lot more money even if the stock goes up $1 to $5, since on a holding base of millions of shares this becomes sizable.
Some will ask: why should MSFT up the bid.
Technically, they don’t. But this is a game of chess. When you make a run for something, you want to make sure you have enough support. MSFT estimates that an offer of $31 will convince 20-39% of YHOO shareholders to sell their shares. I suspect MSFT has 5 or 10% of YHOO’s shares bought… so this puts them at about 25-49% of the shares needed.
To ensure that they have 30-60% of shareholders agree - plus their 5-10% holding - I think they recognize they need to sweeten the pot a bit. Sure, maybe not go to $40 / share, but in the mid 30s. Legg Mason - the second largest investor in YHOO - has all but agreed to sell in the mid 30s, and Capital Research & Management is eager to sell at current prices, so to ensure that YHOO indeed becomes a subsidiary of MSFT, I think the market is saying that this deal will settle at $35 or so, or $50B.
Long YHOO.
In a few years, the behind-the-scenes jockeying that went on in the battle for Yahoo! will prove to be a bigger story and saga than the KKR takeover of RJR Nabisco. One reason for that, frankly, is that while the tale of the Barbarians at the Gates involved a handful of egos and ambitions, the outcome of the Yahoo!/MSFT ordeal will involve many more players than the starring characters.
You see, as two extremely widely held securities, the tug-of-war for Yahoo! - the world wide web’s most distressed crown jewel - will ultimately be determined not by the CEOs or CFOs of either company, but rather, by a bunch of money managers who run the country’s institutional investors, which include mutual and hedge funds.
Looking at publicly-available data as of September 30th, 2007, I am listing the major mutual fund and hedge funds who own shares in both MSFT and YHOO.
Institutional investors, including hedge funds, holding both MSFT and YHOO - color coordinated to boot!
Assuming we don’t care about whether they are hedge funds or mutual funds, then you see a lot of crossover:
Of course, it does matter whether it’s a hedge fund or a mutual fund, as hedge funds are unregulated and share the investment profile and horizon of a mercenary. To them, a quick payoff is paramount, whether to a mutual fund, they might have a long-term profile relative to hedge funds, but beating the market is of main concern.
To summarize, the common denominators own 18% of MSFT and almost 30% of YHOO.
Interestingly, my argument is that the real question is who also owns Google, for a combined MSFT/YHOO will put a dent in Google’s business one way or another (if for no other reason that it has more firepower and can inflict carnage in any blow-for-blow fight, be it for a startup, market, talent etc.).
“We think MSFT (Microsoft) will need to enhance its offer if it wants to complete a deal,” Miller said in his quarterly letter to investors, which was released on Tuesday. Legg Mason is the second biggest shareholder of Internet firm Yahoo.
Miller, famous for steering the $16.5 billion Value Trust to 15 straight years of outperformance versus the Standard & Poor’s 500 index until 2006.
It should be noted that unlike Capital Research and Management - who owns both MSFT and YHOO - Mr. Miller’s fund does not own shares in MSFT (or if it does, it’s less than 1.5%, according to its top holdings).
Read more.
Note: Long YHOO
After a few - well, shall we say it - boring years, Yahoo! is turning into a soap opera. The lawsuits have started:
The Wayne County Employees’ Retirement System of Michigan, owner of about 13,600 Yahoo shares, sued Yahoo in Delaware’s Court of Chancery
And a major investor, Mutual fund house T.Rowe Price, which owns 18 million Yahoo shares, is prompting CEO Jerry Yang to cash in his chips at MSFT’s next offer (NY Post via Valleywag).
I see this settling sooner than later. Yes, there are a lot of egos involved, but while MSFT and YHOO are lobbying investors publicly, privately I presume the bankers and lawyers are brokering a cease-fire in the $50B market cap (or $35/share). I can see why the most senior leadership on both sides want to be seen as looking out for shareholders.
The major power broker will very well be Capital Research and Management who owns 6% of one and 11% of the other. Here’s why I think they all want a happy merger sooner than later: to remove the uncertainty and to make way for the creation of a $400B market cap behemoth.
MSFT + YHOO would command much better growth prospects. In fact, by adding YHOO’s $7B revenue streams onto MSFT’s $51B 2007 revenue base, combined with YHOO’s higher P/S multiples pushing MSFT’s P/S and P/E up… MSFT being a $400B company is not out of the realm of possibility.
MSFT’s P/S is 4.52, YHOO’s is 5.81. Combined, the new company would have something near 5.25. Google’s is 9.50.
MSFT’s revenue grew from $44B in 2006 to $51B in 2007.
For 2008:
- without YHOO, just last week Microsoft raised its full-year forecasts for fiscal 2008. Revenue is now projected to be $59.9 billion to $60.5 billion, up from the Oct. 25 forecast of $58.8 billion to $59.7 billion, an increase of 1.3 percent on the high end. The average of $59.9 billion to $60.5 billion is $60.2B.
- Yahoo! alone will do $7.2B to $8B, according to their recent earnings call.
Combined this means a revenue range of $67.1B to $68.5B, or an average of $67.8B.
Using a 5.25 P/S multiple, this projects MSFT’s value to be $355.5B.
That’s just using the P/S and revenues. There’s a lot of cost savings (MSFT pegs this at $1B) and the P/E projection - while less obvious - is more interesting. MSFT netted $14B in 2007. Yahoo! only $600M. Combined you are looking at a company that nets $15B in profits. Google generated $17B in revenues!
More importantly, MSFT would be able to invest all more into IT to make Yahoo! competitive. MSFT’s current P/E is 16 (but this after the week-long slide after the YHOO deal was announced), YHOO’s is 60. YHOO’s is indeed distorted due to its holdings in Alibaba and Yahoo! Japan, but there is no way that investors won’t give a combined entity firing off all cylinders in software, entertainment and online advertising anything less than 30. Google’s P/E as a pure play online advertising/search play is 38 P/E.
MSFT/YHOO profits of $15B x a P/E of 30 is $450B.
Even if the P/E is a more sedate 25, then at $15B profits, you are looking at a company worth $375B.
At half of Google’s P/E, you get a multiple of 18, that yields $270B. But, that is way too low cause MSFT is right now at 16 and was above this before the YHOO was announced.
For this reason, a post-merger YHOO/MSFT would be worth near $400B (average of P/E and P/S basis) and more than offset any decline MSFT has faced this week.
Read more in the original post here.
Note: Long YHOO
