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5 Companies Microsoft Should Buy

Kevin Kelleher

Tough luck, Microsoft .

Yahoo! has reportedly rebuffed its advances for what would have been one of the most talked-about mergers of the year.

Oh, well. Maybe it's all for the best. Few seemed to think it was a very good idea anyway, and most of the benefits from owning Yahoo! can be had more cheaply by forging partnerships with each other.

Still, it can't be easy sitting around with $28 billion in cash burning a hole in your pocket. So what can Microsoft do? Here's a list of five companies worth its money -- none of them may make perfect sense, but they all make a lot more sense than buying Yahoo!.

And they're all cheaper than Yahoo's $40 billion market cap. The first four combined are worth less than $20 billion, while the fifth is pricey, but could help it break out on the Net.

1. iRobot(IRBT Quote)
Market value: $377 million
Price-to-sales value: 2.0
Price-to-book value: 4.2

Don't laugh. Microsoft doesn't talk a lot about robotics, but it's deadly serious about it. It sees the PC boom reoccurring in the nascent robotics industry, and it wants its software to be the standard that unites all robots, just as Windows united most PCs.

	Who else should Microsoft buy? Answer Here

Last month, Microsoft posted its Robotics Studio software on its site, free for anyone to download, and included support for the Create software from -- that's right -- iRobot.

iRobot's stock has hit hard times, but it remains years ahead of anyone in the market for low-cost robots for consumers -- a market it created single-handedly with the Roomba vacuum. Buying iRobot would help Microsoft cement its software as the standard, and give it a huge head start in consumer robots -- a market about to take off.

2. Cerner(CERN Quote)
Market value: $4.2 billion
Price-to-sales value: 3.0
Price-to-book value: 4.4

In February, Microsoft acquired Medstory, a start-up with a smart search engine tailored for health and medicine. That followed last year's purchase or Azyxxi, whose software can aggregate patient data from far-flung sources.

Both deals are small but intriguing pieces of a strategy that seems to echo some of the health care themes of the Gates Foundation. Yet if Microsoft wants to fast-forward to a coherent, robust presence in the health care information industry, it could buy out a company like Cerner.

Of course, Microsoft is more interested in offering health care information to consumers while Cerner's software is marketed to the medical profession. But what if Microsoft let patients see all the information their care providers have on them? It could tear down a wall of secrecy that leaves many patients powerless in today's dysfunctional health care system.

3. Salesforce.com(CRM Quote)
Market value: $4.9 billion
Price-to-book value: 17.7
Price-to-sales: 10.0

Microsoft's CRM Live, unveiled last year, strayed onto Salesforce.com's turf. But under the guidance of CEO Marc Benioff, Salesforce is veering into a collision course with Microsoft in one of the hottest areas of enterprise software: online collaboration.

With its recent purchase of Koral, an online content-management company, Salesforce is positioned to step easily into project and contract management and even Web conferencing, areas that Microsoft is hoping to claim with its Sharepoint. Why not buy your competitor before it is your competitor?

Salesforce's board would, of course, fight the move tooth, nail and poison pill. But the right offer might be as hard to resist as Rupert Murdoch's bid for Dow Jones .

4. Intuit(INTU Quote)
Market value: $9.6 billion
Price-to-sales value: 4.0
Price-to-book value: 5.3

A purchase of Intuit would provide Microsoft with instant credibility among the many small businesses that use QuickBooks and would turn Microsoft Money -- which, aside from Hotmail, is the most useful thing Microsoft has to offer on the Internet -- into a robust personal finance site.

The idea is far from new: The notion of buying Intuit is ... oh, only 13 years old. It never happened because of monopoly concerns, But both companies are different beasts today, having evolved to remain complementary to each other while less threatening to rivals.

Intuit, for example, has branched into on-demand banking solutions, which could give Microsoft a footing in an area of software that is important to its future plans.

5. Adobe(ADBE Quote)
Market value: $23.9 billion
Price-to-sales value: 9.4
Price-to-book value: 4.7

OK, this would deplete nearly all of Microsoft's stash of cash, but it could also provide the company with its last best shot of controlling something close to an Internet platform.

Adobe's Flash Player, long optimized for the Microsoft platform, has become as ubiquitous as it is brandless -- it powers everything from higher-bandwidth ads to videos on Google's(GOOG Quote) YouTube and many other video sites.

Overnight, Microsoft would be a big player in both. Flash is on 97% of desktops -- even larger than Windows' market share. But Adobe's Flash Cast and Flash Home promise to extend its reach to mobile devices. Acrobat, as popular in email attachments as Excel and Word, could be integrated into the Office suite. And Photoshop would help Microsoft match Apple's(AAPL Quote) new Aperture software.