Media Duped Again on 'MicroHoo' Rumor

Revived rumors of a Yahoo!-Microsoft deal had the business media spinning its wheels again.
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The Business Press Maven is not saying that every calcified, discredited rumor needs to be detonated on the spot, killed in the crib. Far be it for me to be so brash.

But when we've already seen published rumors from the business media that

Microsoft

(MSFT) - Get Report

is going to take over

Yahoo!

(YHOO)

, and then we see them again (like, uh, Tuesday), don't you think investors should be told, "This thing we are traveling on has proved to be a bridge to nowhere"?

It was on a cold, rainy day in my soul back in May when

The New York Post

made a big call that Microsoft was going to take over Yahoo!, which put Yahoo!'s stock into a tizzy.

Whoa

, said The Business Press Maven, who called for his home test kit for such market-moving articles, which is called

source analysis.

I even had to

scoop myself to get the source analysis out there as soon as possible.

Essentially, the

Post

article used several sources, all unnamed. I can be cool with that in isolated circumstances, but before I go and believe there's going to be a MicroHoo in our future, I have to get some sense of who these Chatty Cathies are. They could be Bill Gates or, more likely, a risk-arb salesman looking to pump the stock. Speaking of that, a

Reuters

article soon followed, naming precisely one source. He was a ... risk-arb salesman. And from a third-tier firm, no less. I guess one media outlet's inside scoop is another's self-interested numskull.

Anyhoo, the so-called deal failed the source analysis, and that brings us to Tuesday's overblown movement in Yahoo!'s stock.

(To really get a sense of how these thing work, savvy investor,

read how the journalist who wrote this market-mover backed off quicker than the stock. Begging an audience with The Business Press Maven, he claimed he was inferring that Microsoft might just want to do a joint venture with Yahoo!. Anyhow, read his story, headline and then letter, and tell me who you believe.)

Along came Tuesday morning, and Bear Sterns started it off with a bang, by making Yahoo! a top pick and highlighting the fact that it might be a takeover candidate coveted by the likes of ... Microsoft.

It (ouch) bears mentioning in all these cases that to my infallible memory, Microsoft has never made anything close to a $60 billion acquisition, but perhaps I quibble. The business media were off to the races again, stumbling at the start.

But who can blame the little gullible? Though this happened on a Tuesday because of the Labor Day weekend, it was just like the Merger Mondays to start weeks we had grown to hate.

You can read how and why it is so easy to get big play for flimsy merger talk on the first day back to work

here.

The Bear Stearns note was released, the stock began to climb, and

Barron's

, for one, first reported on the note and the stock movement without mentioning the revival of the Microsoft rumor.

Could the rumor possibly be true? I haven't the vaguest idea, but

Barron's

redeemed itself by soon publishing again on the subject, mentioning its miss of the Microsoft mention and then being one of the few to put it in any sort of perspective.

Wrote Eric Savitz, savvily:

"So, this is all fun to think about, I would agree. But I would also point out that at $50 a share, Yahoo! would sell for $67 billion. As I noted in a post on last week's rumored Microsoft megadeal, which had them buying

Research In Motion

(RIMM)

in another theoretical $60 billion deal, Microsoft has absolutely zero record of doing large acquisitions. Aside from the $6 billion aQuantive deal, which came amid a feeding frenzy for Web advertising plays, the company has never bought anything for more than $1 billion. Yahoo! might be cheap, but stocks are often cheap for a reason; Yahoo! has shaken up management, but the expected restructuring of the business has a long, long way to go. I'm also far from convinced that there is a media company out there that would undertake a $67 billion acquisition of Yahoo!. Possible, sure. A fun parlor game, sure. But a reason to buy the stock? I'm not convinced."

By sad comparison,

MarketWatch

from Dow Jones refers to the deal as "a possible merger that has been rumored for months now."

MarketWatch

mentions the rumors, but that proves legitimizing in a sense, because it doesn't give color on how thinly sourced the rumors were. Or, as in the case of

Barron's

, what a departure the deal would be for Microsoft.

Bloomberg

provided another of the day's highlights, though I think this good effort at putting the talk in perspective should have come at the beginning of the article, to define it, not at the end, to cover their tushes. In any case, here it is:

"Microsoft chief executive officer Steve Ballmer said Aug. 20 that Yahoo! would be "an expensive acquisition for anyone to do." Ballmer, questioned by television host Charlie Rose at an event in New York, said Microsoft already works with Yahoo! and would look for more ways to collaborate.

Savvy investors -- cross this bridge to nowhere with great care.

At the time of publication, Fuchs had no positions in any of the stocks mentioned in this column.

A journalist with a background on Wall Street, Marek Fuchs has written the County Lines column for The New York Times for the past five years. He also contributes regular breaking news and feature stories to many of the paper's other sections, including Metro, National and Sports. Fuchs was the editor-in-chief of Fertilemind.net, a financial Web site twice named "Best of the Web" by Forbes Magazine. He was also a stockbroker with Shearson Lehman Brothers in Manhattan and a money manager. He is currently writing a chapter for a book coming out in early 2007 on a really embarrassing subject. He lives in a loud house with three children. Fuchs appreciates your feedback;

click here

to send him an email.