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September 25, 2007

Cash burning a hole in Microsoft’s pocket?

Posted by David Hunter at 11:07 AM ET.

Yesterday, the “Microsoft acquires Facebook” rumors were back according to the Wall Street Journal, with the twist that the unidentified sources say that Microsoft is now only asking for 5% of the hot social networking fad site, but would pay a price that would give Facebook an over $10 billion dollar valuation.

Supposedly Facebook would dearly love the public valuation and could use a little walking around money, while Microsoft would love to demonstrate some trendy credentials and perhaps permanently lock in their Facebook advertising deal.

Not to be outdone, Peter Lauria at the NY Post is reporting that sources tell him that if Facebook won’t play, then Microsoft may go public with their offer for Yahoo from earlier in the year to stampede the Yahoo shareholders into forcing management to deal.

The apparent rationale according to Lauria’s sources is that Microsoft really needs a big deal to prove its mettle, but the Microsoft board won’t approve three multibillion dollar deals in one year and since the aQuantive acquisition counts as one, it’s either Facebook or Yahoo.

All these rumors are good fun, but the ascribed motivations for the players seem to be rather thin to my mind, particularly for Microsoft. The Yahoo acquisition is nearly impossible to justify and while buying 5% of Facebook at an astounding valuation might possibly turn out to be a good investment irrespective of other benefits, it seems like a stretch to claim significant value from such a deal that would likely preempt any Microsoft social network initiatives and might well fund Facebook’s development of its own ad technology.  

However, the really worrying thing about these rumors (and I emphasize that they are rumors) is the impression given that Microsoft management has a big wad of cash burning a hole in their collective pocket and that they are trying to get rid of it fast on any deal they can scare up. That’s not what Microsoft shareholders really want to hear.

Filed under Acquisitions, Coopetition, Facebook, Financial, General Business, Investor Relations, Microsoft, Yahoo

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One Response to “Cash burning a hole in Microsoft’s pocket?”

  1. Microsoft and Google in Facebook bidding battle? -- Microsoft News Tracker Says:

    [...] I’ve previously found the purported rationales for this rumored Microsoft-Facebook deal a trifle wacky, but I guess common sense goes out the window when you are a slave to fashion. Presumably the best way to look at it is as just another eyeball auction although the the precise nature is unclear given Microsoft’s current “strategic advertising alliance” with Facebook and Facebook’s own advertising initiatives which seem just about to bear fruit.   Filed under Acquisitions, Alliances, Coopetition, Google, Microsoft, Facebook   [Permalink] [TrackBack] [...]

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