Yahoo board members wonder whether CEO Jerry Yang is acting more out of emotion than responsibility by rejecting Microsoft's offer, and they have a good reason to wonder if we are looking at recent stock performance. Yahoo shares were at $19 a share and falling before Microsoft's offer, which is currently worth about $30 a share.Yahoo trades at about 61 times last years earnings, whereas Google trades at 38 times. For this investors get 30-40% sales growth with Google.
PEG ratio states that a stock's price to earnings ratio should be roughly equal to its growth rate. Yahoo currently trades at PEG ratio of 3, meaning stock is valued at 3 times the growth rate. Google trades at PE of 0.72, which means stock needs to gain 39% to be fairly valued. Therefore, it's going to be difficult to get a good return on it's investment even at the current offer.
The merger creates a worthy opponent to Google, as long as Microsoft don't intend on changing the well established Yahoo brand and renaming it to one of its current brand names, such as MSN. In display adverts, adding Microsoft's share will make Yahoo's market leader position nearly invulnerable. Yahoo can also contribute to Microsoft's "search, location based services and advertising" aspects, which are key features of revenue growth in the future. Microsoft's announcement to take on FAST, a Norwegian enterprise search firm is likely to be very complimentary.
For more detail check out http://www.internetnews.com/bus-news/article.php/3726506
Google Chief Legal Officer David Drummond posted a company blog about the offences Microsoft and Yahoo may commit if they become one united business. The two company's currently "operate the two most heavily trafficked portals on the Internet". Using both of these portals may be able to take advantage of PC software monopoly to limit the ability of consumers being able to access competitor's features.
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