Microsoft makes play for Yahoo!; Anheuser-Busch heard mixing with InBev; 'rescue'-buzz lifts Ambac

By Paul A. Harris

St. Louis, Feb. 1 - In a move which market sources characterized as well timed, Microsoft Corp. unveiled plans to acquire Yahoo! Inc. for $44.6 billion in hopes of corralling some of Google Inc.'s internet search traffic and advertising revenues.

Meanwhile the monoline space continued to generate a buzz on a news report that eight banks intend to ride to the rescue of Ambac Financial Group, Inc.

Elsewhere, market sources seemed unimpressed by a Wall Street Journal story suggesting that a merger between Anheuser-Busch Companies, Inc. and InBev NV may be in the works.

Mahoo!

On Friday Microsoft announced that it has made a proposal to the Yahoo! board of directors to acquire all the outstanding shares of Yahoo! at $31.00 per share, representing a total equity value of approximately $44.6 billion.

Microsoft's proposal would allow Yahoo! shareholders to receive cash or Microsoft shares, with the total consideration payable to Yahoo! shareholders consisting of one-half cash and one-half Microsoft common stock. The offer represents a 62% premium above the closing price of Yahoo! common stock on Jan. 31, according to a Friday press release from Microsoft.

An analyst told Prospect News that whatever else might be said about the deal at least Microsoft can't be faulted for its timing.

Since topping out at a little over $34.00 per share in late October 2007 Yahoo's share price has slumped, the source said.

In fact, the analyst added, $31.00 is not too far off from the price at which Yahoo was trading a year ago, when Microsoft made a previous pass.

"In late 2006 and early 2007, we jointly explored a broad range of ways in which our two companies might work together," Microsoft chief executive officer Steve Ballmer wrote in a Thursday letter to the Yahoo! board.

"These discussions were based on a vision that the online businesses of Microsoft and Yahoo! should be aligned in some way to create a more effective competitor in the online marketplace. We discussed a number of alternatives ranging from commercial partnerships to a merger proposal, which you rejected. While a commercial partnership may have made sense at one time, Microsoft believes that the only alternative now is the combination of Microsoft and Yahoo! that we are proposing."

Hence, said the analyst, the timing also likely hinges on Terry Semel stepping down as Yahoo board chairman, on Thursday.

Ogling Google

The analyst also asserted that the entire Friday conference call was laced with "veiled allusions to Google.

"They tried not to say the name," the source said, adding that Ballmer went so far as to mention that although other parties may be bidding for Yahoo there is one other party that cannot do so, since a Google-Yahoo merger would result in a worldwide paid-search advertising market share that would no doubt violate antitrust laws.

In the letter Ballmer also asserted that "Together, Microsoft and Yahoo! can offer a credible alternative for consumers, advertisers, and publishers."

"It's hard for me to see it as a 'credible alternative,'" the analyst said, noting allusions in the press to a "Mahoo" possibly being "The next AOL-TimeWarner."

The analyst conceded that the combined revenues of a "Mahoo" entity would dwarf those of Google.

"They highlighted that on the call," the analyst recounted.

"From a consumer perspective this deal appears much larger than it does from other perspectives.

"A lot of people use Yahoo! as a portal."

The analyst noted that Yahoo! has a poison pill at 15% of the company.

"It's conceivable that they might try to fight Microsoft, although it does not seem likely," the source said.

Friday's news sent Yahoo! (Nasdaq: YHOO) shares soaring for nearly a 48% gain on the session, up $9.17 to close at $28.35.

Microsoft (Nasdaq: MSFT) shares, meanwhile, closed lower, down $2.15, or 6.6%, to end at $30.45.

Google (Nasdaq: GOOG) shares, meanwhile, saw a significant drop, down $48.40, more than 8.58%, to close at $515.90.

However the "Mahoo" situation factors into Google's share price, one market source noted that Google stock has suffered from recession worries as well as the challenges the company is facing as it attempt to sell off its ad inventory.

Eight rode in

Elsewhere a hedge fund manager said that the bond insurers remained on Friday's front burner because of a press report that eight banks are working to shore up troubled monocline insurer Ambac.

CNBC reported that the octet is comprised of Barclays, BNP Paribas, Citigroup, Dresdner Bank, Royal Bank of Scotland, Societe Generale, UBS and Wachovia.

Ambac (NYSE: ABK) shares rose a shade less than 13.40%, up $1.56 to close at $13.20.

The hedge fund manager also commented that shares of MBIA Inc. (NYSE: MBI) got a lift on Friday.

MBIA closed the session up 5.55%, or $0.86 per share, to close at $16.36.

The source noted that the MBIA move is even more dramatic given that its shares fell to $12.75 in after hours trading on Thursday.

Mixed drinks

Early Friday morning a source advised Prospect News that a Wall Street Journal story was suggesting that Anheuser-Busch has been in discussions with Belgian brewer InBev, formerly Interbrew SA.

Industry insiders told the paper that a merger deal, while possible this year, faces hurdles including seized-up credit markets and high commodity prices.

In a Friday email message to Prospect News, Harry Schuhmacher, editor and publisher of Beer Business Daily and Beer Distributor Monthly, said he takes the news with a grain of salt.

"They may have talked, but A-B is going to drag its feet as long as possible and see if they can get their core brands growing again in 2008.

"Just a little growth in core brands - half a share point - creates a profit windfall, and the stock price goes up."

Schuhmacher also noted that Anheuser-Busch's stock has taken a bath during the past two week, with a cheap U.S. dollar rendering the brewer vulnerable.

Anheuser-Busch (NYSE: BUD) share prices did foam up during the Friday session, rising $1.56, or 3.35%, to close at $48.06.

And in Europe InBev NV (EBR: INB) also got a lift, closing 2.25 higher (4.1%) at 57.10.

O'Reilly and CSK

Also during the final session of the January-February crossover week, Springfield, Mo.-based specialty retailer of automotive parts and accessories, O'Reilly Automotive, Inc., announced that it is proposing to acquire all of the outstanding shares of CSK Auto Corp. for $8.00 per share in cash, a 34% premium over CSK's closing stock price on Thursday.

The proposal, valued at $845 million, represents a 63% premium over the average trading stock price for CSK over the last 30 days, according to a Friday press release from O'Reilly.

CSK Auto (NYSE: CAO) shares shot up nearly 51% on Friday, a $3.03 price move, to close at $8.98.

O'Reilly Automotive (Nasdaq: ORLY) shares traded up $1.19 (4.04%) to close Friday at $30.62.

Meanwhile all three of the major stock indexes ended the Friday session on the upbeat.

The S&P 500 advanced 1.22%, up 16.87 to close at 1,395.

The Nasdaq was up 0.98%, closing 23.50 higher at 2,413.

The Dow ended 0.73% higher on the session, up 92.83 to close at 12,743.

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