Making Sense of Microhoo

The media spat out knee-jerk analysis about a proposed Microsoft-Yahoo! merger's prospects, generating a lot of nonsense for investors to sift through. You don't want to fall for everything the media says about this potential merger, but you should keep an eye out for good insights.

First, a shout out goes to Barron's columnist Randall Forsyth, who leads with this essential fact so often ignored when news of a big merger surfaces: "The history of mega-mergers has been more like the marriages of Henry VIII than fairy tales where the couple lives happily ever after."

They Still Don't Get Yahoo!

Forsyth, like many, presents an either/or analysis on Microsoft (MSFT) and Yahoo!(YHOO)! Either MicroHoo is going to become an Exxon Mobil(XOM) (a success) or DaimlerChrysler(DCX) (the pits.) And, after such a promising start, the esteemed Forsyth concludes with the cop-out of all time: "As for the particulars of a Microsoft-Yahoo combo, I'll defer our Tech Trader Daily blogger, Eric Savitz."

He then proceeds to tell us what we already know: "As with mergers in the past, whether this combination of two and two yields three, four or more is uncertain." And he ends by repeating that first observation which, if expanded upon, could have taught the savvy investor a thing or two.

Savitz, for his part, has valuable information about the bid and posits that Google's weakness on Friday was more a function of earnings than raw fear of MicroHoo's strength. He also speculates on other potential mergers, and he does so without getting too carried away, a favor to investors.

FakeSteve starts off with prostate exam jokes -- never promising -- but then moves on to a pair of apt merger metaphors.

Essentially, if you tie the legs of two second-class runners together (Yahoo! and Microsoft's online efforts) what you get are a lot of things, but not a winner. Moreover, Microsoft's Steve Ballmer is no idiot, but worse: a man with Detroit on the brain. He grew up in Detroit and is the spawn of a Ford manager. Like the Big Three, when growth was tapped out and ideas to regenerate it were hard to come by, Ballmer reached for the Land Rover, Jaguar-type acquisition.

Though Fake Steve offers helpful perspective about the past, Forbes gets kudos for at least trying to address the future in an interesting way. The Business Press Maven thinks this is too far of a reach, but at least Forbes doesn't stop at the conventional wisdom that Microsoft merely bought Yahoo! to help scare up online advertising dollars. Microsoft had better be aiming for more than that.

Forbes suggests that Microsoft married not for love, but for strength in the mobile sector. Essentially: Yahoo! has the consumer angle, Microsoft has the guts, and together they can forge on successfully in the area that might very well be key to the industry's future. For $45 billion, things had better work out pretty well in this regard. I would not consider investing in any combined entity until I saw evidence of success here. I also would not fret -- as a subset of coverage did -- about Google's anti-trust noise. If they are a damsel in distress, then The Business Press Maven was right about this merger never taking place. Even Google's ability to make mischief is a bit limited.

More Signs of Stagflation

On a separate note, The Business Press Maven started talking stagflation in the American economy around Halloween when few were. My Small Pleasure Index was pointing to signs of it, when slow growth and high inflation in beer, chocolate and pizza occurred.

Well, if you call flying cheaply a Small Pleasure, we are starting to see signs of stagflation elsewhere, too. "Ryanair Holdings Plc, Europe's biggest discount airline, said profit declined for the first time in seven quarters and may drop 50 percent next year on higher fuel costs and lower consumer spending."

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