Filed under: Google (GOOG), Microsoft (MSFT), Yahoo! (YHOO)
Bloomberg News reports that Microsoft Corp. (NASDAQ: MSFT) CEO Steve Ballmer said he did not think it made sense for it to buy Google Inc. (NASDAQ: GOOG). Ballmer cited the high price as well as regulatory and antitrust concerns. Meanwhile, Ballmer said he had no plans to raise his $31 a share cash and stock bid for Yahoo (NASDAQ: YHOO).
But if Ballmer is really interested in advertising, he would get a much more powerful player in Google. After all, Yahoo, which has four more days to consider Microsoft’s offer, saw its sales climb a modest 14% last quarter, while Google sales spiked 46%. And the stock market gave Yahoo a Bronx cheer — slicing 2% off its value this morning on yesterday’s earnings announcement — compared to a 20% surge in Google’s market capitalization on its announcement.
Could Microsoft afford to buy Google? Yes. Google’s current market capitalization of $174 billion is $111 billion less than Microsoft’s $285 billion. If Microsoft offered to swap stock with Google at a 20% premium — a $209 billion deal — Microsoft would end up paying 73% of its shares to own Google. And in so doing, it would create a company with $68 billion in revenues and $18.2 billion in profit.
Sure, there would be all sorts of regulatory challenges getting the deal done. And it’s hard to imagine that the two companies’ cultures would mesh that well. Nevertheless, it would eliminate what for Microsoft is the most vexing of competitors.
And it would be welcomed by fee-starved investment banks as well.
Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter
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