I'm tired of hearing the same flawed arguments:

  • Microsoft (NASDAQ:MSFT) dodged a bullet when Yahoo! (NASDAQ:YHOO) rebuffed its buyout offer.
  • Electronic Arts (NASDAQ:ERTS) skirted disaster when Take-Two (NASDAQ:TTWO) shareholders refused this summer's series of tender offers.
  • Blockbuster (NYSE:BBI) would have been in a world of hurt if it hadn't walked away from its exploratory talks with Circuit City (OTC BB: CCTYQ.PK).

The assumptions are as incomplete as they are misguided. The arguments typically involve pointing at the falling share prices of the companies to be acquired, but that's like shooting bears in a barrel.

Of course the potential purchase tanked. The company not only has to work off the buyout premium that was assigned, but also the general market malaise that has been brutal to even the most celibate of stocks.

In fact, if you go back to the final trading prices before the proposed purchases were even announced, performance isn't even a sound argument.

























Circuit City










Source: Yahoo! Finance.

Microsoft has shed nearly as much as a CEO-less Yahoo! since its wintry play. Electronic Arts has actually lost even more than its Take-Two target. Circuit City is a bankruptcy reorganization disaster, but Blockbuster is no rose.

Don't get me wrong. I know full well that my own argument is flawed if I'm using pre-buyout prices instead of what the acquirers would have ultimately paid if successful. The disparity would be wider. However, what I want you to look at is the 40%, 62%, and 70% share price decapitations at Microsoft, Take-Two, and Blockbuster respectively. These companies didn't dodge bullets. They took 'em right in the gut.

This brings me to my more bold assertion. What about the opportunities that were missed by these deals not going through? Isn't that the real price being paid here?

Boohoo, Microhoo
This year's wildest ride started when Microsoft offered to buy Yahoo! as January came to a close, just two days after Yahoo! posted sloppy fourth quarter results. More than three months of Yahooligan headshaking later, Microsoft walked away.

Good move by Microsoft? I don't think so. Microsoft continues to post losses in its online division. It continues to lose ground to Google (NASDAQ:GOOG), which every day digs deeper into the Microsoft playbook by offering up Web browsers, cloud computing productivity apps, and a mobile operating system. Microsoft remains the global software leader, but growth is slowing in its stronghold. Instead of diversifying into the high-margin cyberspace turf with Yahoo!, investors are down to hoping that Microsoft can get over Vista on the operating system side and that taking margin hits on Xbox 360 consoles will ultimately be offset by video game software royalties.

Yahoo! is no Google, but a Microhoo combo would be far more relevant on the Internet than Microsoft or Yahoo! alone.

EA doesn't get in the game
Electronic Arts saw a chance to grab Take-Two just two months before Grand Theft Auto IV hit the market. It was poor timing, as Take-Two wasn't about to give up the company when the hype was building, and ultimately justified when the game became the fastest-selling video game of all time.

EA took its offer directly to Take-Two shareholders, but they never took to the tender proposal at $25.74 a share. After a few tender offer expirations and a closer look at Take-Two's books, EA walked away in mid-September.

Big mistake, EA. In-house titles like Spore have failed to live up to the hype, and the company is no longer the top video game company. Maybe now is a good time to restart the game.

Making it a blockbuster buy
Even Blockbuster is less of a company right now without Circuit City. It was mid-April when the DVD rental giant threw up the notion of paying between $6 and $8 for every share outstanding of the struggling consumer electronics chain. Blockbuster left the table two months later.

The two leveraged retailers would have made for a freaky wedding. It would have been a huge aisle to accommodate these two bottom-heavy stalwarts. However, when you see how Blockbuster's latest quarter was saved by a huge spike in video game merchandise sales, its shift away from rentals and into outright sales would have been a nice fit with Circuit City. Blockbuster and Circuit City may be flawed companies, but they have ways of covering one another's retail gaps.

Let them play
Would Microsoft be better off with Yahoo!'s mammoth page views and its growing interactive advertising network? Yes. Could a stagnant EA use the Grand Theft Auto, Civilization, and BioShock franchises? You bet. Would Circuit City in Blockbuster's hands lead to cross-branding opportunities that would keep both concepts exciting during this tricky holiday season? I sure think so.

What's that? These aren't fair questions because the acquisitions weren't free? Yes, but in every case, it was the potential buyer that walked away instead of trying to negotiate a more agreeable price. Either way, the market has spoken. Wall Street just isn't into Microsoft, EA, or Blockbuster these days without their potential trophy wives.

The world according to Microsoft: