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Microhoo Will Never Die

By Rick Munarriz - Updated Apr 5, 2017 at 7:07PM

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Rumors of Yahoo! and Microsoft hooking up won't end until they kiss.

Vampires and Microhoo have a few things in common these days.

  • Going by the recent prices on shares of Microsoft (NASDAQ:MSFT) and Yahoo! (NASDAQ:YHOO), it's safe to say that none of them should be out during daylight's trading hours.
  • Given the multiplex stickiness of Twilight, one can argue that both vampires and Microhoo continue to make headlines.
  • Oh, and unless you have a heat-seeking wooden stake handy, good luck killing either one.

Yes, Microhoo buzz is back, even if it never really went away. This time it was London's The Sunday Times stirring the pot, reporting that Microsoft will be making a $20 billion play for Yahoo!'s search business.

BoomTown's Kara Swisher quickly shot holes into the story, and she has the Rolodex to confirm or debunk nearly all of the Microhoo chatter. The deal didn't make sense. The alleged new management team didn't make sense. The price -- significantly more than all of Yahoo! is worth -- certainly didn't add up.

However, convincingly putting out one fire doesn't mean that another one isn't about to be rekindled somewhere else. Microhoo chatter will never die, because, quite frankly, it makes too much sense.

First dibs on the wedding cake
You've probably been to a few rowdy weddings. There are few things as annoying as when guests begin clanging their forks against their water glasses, egging on the bride and groom to smooch. They kiss, but the entire episode will start up again several minutes later.

That is Microhoo's perfect portrait. Ever since Microsoft showed its hand with the original January offer to buy Yahoo! at $31 a share, the libido-stoking media isn't letting either company forget it. Yahoo! was wrong to turn the software giant down. However, now the scrutiny is on Microsoft not following through, when it can spare Yahoo! from living out its life as an old maid at a fraction of its earlier offer.

The Times story didn't make sense on many different levels. Even singling out former new media execs from Time Warner's (NYSE:TWX) AOL and News Corp.'s (NYSE:NWS) Fox Interactive as the venture's leaders proved hollow. Swisher was quickly able to get one of the two executives to go on record in calling the chatter "total fiction."

Strip search
Why would Yahoo! unload just its search business in the first place? Sure, that $20 billion price looks pretty sweet. It is far more than the $13 billion enterprise value that Yahoo! is presently commanding, and a good chunk of that is spoken for in Yahoo!'s stakes in China's Alibaba, Yahoo! Japan, and South Korea's Gmarket (NASDAQ:GMKT).

Carving out search -- a tricky operation in and of itself -- would leave Yahoo! with a ton of views on pages that have been historically difficult to monetize, its Asian investments, and a languishing display-advertising network that has been cobbled together through a series of acquisitions.

Right now, AOL is a poor man's Yahoo!; remove search and Yahoo! becomes a poor man's AOL.

Yes, the price is right, but why would Microsoft pay so much when it can probably snag all of Yahoo! instead? It can buy the entire unkempt garden and then prune away as needed. It can unload Yahoo!'s overseas stakes if it runs into any antitrust concerns. It shouldn't have any problem moving Yahoo!'s display business to other new-media players, like AOL. The bidding war would be huge for Flickr, as photo-finishing players like Shutterfly (NASDAQ:SFLY) and printing-products specialists like Hewlett-Packard (NYSE:HPQ) would likely pay well to grab the popular shutterbug hub.

In the end, it's really just common sense. Microsoft needs a profitable presence in cyberspace, especially as it is gravitating toward the ad-supported cloud-computing solutions necessary to take on nimbler rivals. Yahoo! has little reason to give away its one source of high-margin greenery, but it has to be open to a deal that would surrender the company at a humbling price.

The forks are starting to smack the glass goblets again. The kiss is inevitable. Go for it, Mr. Softy. Plant a big one on Yahoo!. Oh, that's right, you're a vampire. Stick those fangs into Yahoo!'s neck and get it over with. Just don't be surprised if it's already been bled dry.  

The world according to Microsoft:

Microsoft is a Motley Fool Inside Value pick. Gmarket is a Motley Fool Rule Breakers recommendation. Try any of our Foolish newsletters today, free for 30 days.

Longtime Fool contributor Rick Munarriz wants to apologize for the matrimonial metaphors. He caught Tony & Tina's Wedding over the weekend. Why didn't anyone tell him it was that bad? He does not own shares in any of the stocks in this story. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.

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