Talk about free publicity! Not a single day has gone by without media attention to the Microsoft-Yahoo-rollercoaster.
The headlines adjust daily to the changing dynamics. The most recent update is that Yahoo (YHOO) rejected Microsoft’s (MSFT) beefed up bid of $33/share.
Interestingly, there have been talks ranging between commercial partnership and a merger proposal dating back to 2006/2007 before Microsoft’s
February 1, 2008, $31/share ($44.6 billion total) offer to acquire Yahoo.
As Yahoo’s stock continued to fall throughout 2007, Microsoft’s management became emboldened and began internal meeting in late 2007 about the prospect of making a hostile bid.
Steve Ballmer, CEO of Microsoft, stated that, “We have great respect for Yahoo, …” That was three months ago and his sentiment might’ve changed after having been rebuffed several times by Jerry Yang (Yahoo’s CEO) who feels that $37/share (a 92.9% premium compared to January 31st closing price of $19.18) would be an appropriate offer.
Yahoo shares have given up as much as 20% (closing down 15%) on Monday while Microsoft was up 2%, relieved that they won’t overpay (at least for right now).
Google (GOOG), the third element in the saga closed up 2%. Obviously it would be to Google’s benefit if Microsoft and Yahoo went their separate ways without challenging Google’s #1 spot.
The feeling on Wall Street is that the soap opera is not yet over, as a deal between Microsoft and Yahoo is still possible.
While a successful merger would benefit both Microsoft and Yahoo, Google would be laughing all the way to the bank if the merger never materializes.
Since
January 31, 2008, Microsoft is down 10.44% while Yahoo and Google are up 27.06% and 5.42%.
Even though the reaction of the three main components is quite irrational, the Technology sector as a whole is up since February 1st.
The biggest pop was seen in the First Trust Dow Jones Internet ETF (Ticker: FDN), up 8.44%. This comes as no surprise since it has a 11.46% weighting in Google.
iShares S&P North American Technology ETF (Ticker: IGM) and Vanguard’s Information Technology ETF (Ticker: VGT) impressed with a 7.59% and 7.26% return.
Not far behind were iShares Dow Jones Technology (Ticker: IYW) with 6.21%, the Select Sector Technology SPDRs (Ticker: XLK) with 6.20% followed by the Rydex Equal Weighted Technology ETF (Ticker: RYT) with 5.35%.
It's important to keep in mind that getting in (or out) one day too early (or late) could have made a 10-20% difference to YHOO, GOOG or MSFT (i.e.
02-01-08 and
05-05-08).
While investing in the entire sector is not as accelerating as owing the individual stock, it offers broader exposure with a lower risk of mood swings and heart attacks.
ETFs containing MSFT, YHOO, GOOG & AAPL:
Data as of 05-05-08
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