Business Channel 2007-05-10&12

Microsoft is reportedly looking to ride the wave of M&A, negotiating perhaps a buyout deal with Yahoo, will this pairing be enough to knock Google off its perch 1? Let's ask Walter Pritchard, he's managing director of Equity 2 Research with Cowen & Co. and David Garrity, he is director of research with Dinosaur 3 Securities. Look ,gentlemen, we have heard the rationale here, right we know that, Microsoft is good at monetizing search traffic, they don't just get that, they don't get that much traffic, Yahoo gets plenty of traffic but they don't seem to be able to monetize it very well, you put the two together, sounds like a good idea, Walter, what do you think?

I think, I think in theory, it's you know, it's...it makes some sense I think though you know, paying 15 billion dollars for Yahoo or whatever the price it rumored 4 to be, I think it's, it's a bit steep, I think money can be better used in other ways. I think if you look at, you know, the online ad market being a market place between eyeballs and advertisers, that's half the rationale for the deal, the other, the other half will have to be around, being able to drive innovations, something I think Microsoft is, is lagged on the online side. I think arguably Yahoo has it as well , I think, you know Google has both organically and been able to acquire their way into really being the innovator 5 in the on-line business, I think, you know this deal wouldn't do a lot to, to further Microsoft's efforts in that regards. I think that's where, where I worry more about it than, than necessarily any...

So the bottom line will be ,uh, you are negative on the idea?

I mean, you know, I think Microsoft's shares are worth less owning, owning, owning Yahoo in the short term than they are without, I...

OK. David, what do you think?

I think it's a deal that makes a tremendous amount of sense, I mean rather than having two companies No 2 and No 3 spending as much on investing in search about 9 billion dollars and being redundant 6 in terms of development efforts. It is a waste of shareholders 7' money on both sides. Uh, You know having a timely merger 8 between the two companies Yahoo rolling up project paramount 9 where they spend the time and money to improve the monetizational search and being able to put this on top of what Microsoft has, er, could create a tremendous amount of value. From the standpoint of looking at Microsoft's stock, it's broken out of a five-year- range of how this has been doing.

But, David, what about culture? I mean the founder 10 of Yahoo Jerry Yang doesn't use Microsoft products, he hates Microsoft so much, I mean ,there is always integration 11 risk, isn't it even higher with this combination?

Well, the issue here is Jerry Yang really driving the bus and, and the bottom line here if we look at Microsoft in the relationship with Yahoo, up until June, 2006 Overture 12, which was owned by Yahoo , still is, er, was a search provider for Microsoft, the two companies have worked together for years.

Walter, what, if you don't think this is such a good idea, what should Microsoft do right now, what should Yahoo do right now?

Yeah, you know, I will speak less for Yahoo （OK）cause it's not a company of coverage 13, on the Microsoft side, you know ,you look at, you look at where the innovation is in the online space, we talk about search being the most sort of killer 14 app in the online space today. So I think if you look 5 years down the road I think things like search, search is probably less important in five years than it is today and Microsoft should be looking beyond search in the areas whether further innovation in the online sites. I think, I think Microsoft should be buying a company a month in the online space that helps them put together sort of a charisma 15 if you will of online properties that you know, attract users to them beyond, beyond the search, search mechanism 16.

David, you get the last word here.

Well, you know, why should you buy odds 17 and ends when you can really have a major deal now that makes a big change, office life is getting, it's getting losing out to what Google applications are making available in terms of documents. If you put Yahoo and Microsoft together, you could really show that Microsoft believes in the thing clients and its moving beyond the PC is being sort of the guiding mentality 18 for the company. Uh, Network computing 19 is where it's going forward and Microsoft has a PC franchise 20 that has been mute and now it's the time to do it.

Walter Pritchard, David Garrity, thank so much for weigh in on what could be wow, a transformational event in the markets , thank you.

NOTES:

1. M&A
Mergers 21 and Acquisitions---- Business->General

2. rationale
formal the reasons for a decision, belief etc

3. perch
A position that is secure, advantageous 22, or prominent.

4. Overture
(Overture Services, Inc., Pasadena, CA, www.overture.com) A pioneer in keyword advertising 23 on the Web. Founded in 1997 as Goto.com, it was one of the first Web search engines that included paid ads in the results list that matched the keywords used in the search.

5. odds and ends
small things of various kinds without much value --British English informal