Ripe and vulnerable
As world stock markets plunge, technology companies that have hoarded cash are in a great position to buy up companies whose share values have plummeted in recent weeks. Cash-flush firms like Microsoft could go on a buying binge.
Microsoft CEO Steve Ballmer must be thanking his lucky stars. Since May, when his company offered more than US$47bn ($33/share) for troubled Internet media firm Yahoo, the world’s financial markets have gone into a tailspin. Yahoo, whose share price has fallen to $12, is now worth just $17bn.
If Microsoft had gone ahead with the deal, it would now be facing huge financial write-downs. And if I were a Yahoo shareholder, I’d be spitting mad with CEO Jerry Yang. Yang fought tooth and nail to avoid a Microsoft takeover. Ballmer, who repeatedly said he would not overpay for Yahoo, walked away from the deal after Yang and his management team demanded he raise the offer to $37/share.
Could Microsoft, with its powerful balance sheet, make another offer for Yahoo? Or is the Internet company a spent force no longer worth buying? Microsoft has repeatedly said that it is no longer interested but, at $12/share, can it really resist another go? After all, the company’s Google problem hasn’t gone away. Far from it, in fact. If anything, Google continues to grow more powerful, challenging Microsoft in areas such as productivity tools (with Docs) and Web browser software (with Chrome).
Microsoft’s challenge, perhaps, is that it is waging battles on too many fronts, from Web search to videogames and from office software to mobile phone operating systems.
With share prices plummeting — the Nasdaq Composite is only a few hundred points from its post-dot-com lows — Microsoft may have other companies on its radar screen. News agency Reuters recently made an interesting prediction: that Microsoft could make a play for Research In Motion (RIM), maker of the BlackBerry e-mail smartphone. RIM is looking relatively cheap – its $31bn market cap is less than 40% of what it was at its peak four months ago.
As CNet’s Ina Fried points out, RIM is strong in the corporate phone market, Microsoft’s area of interest. Windows Mobile, the company’s cellphone operating system, is looking dated, especially compared with the software on Apple’s iPhone 3G handset.
But, as Fried says, Microsoft’s Web business is “hurting for market share way more than the mobile unit”.
Whatever Microsoft decides to do, its balance sheet has put it in a powerful position to build bulk in areas where it is not strong.
Security software company Symantec, though smaller than Microsoft, is in a similar position. Last week it announced it would acquire specialist information security provider MessageLabs for $695m in cash. Symantec, which has always been highly acquisitive, generates hundreds of millions of dollars of cash every quarter from operating activities ($414m in its most recent quarter).
Oracle, led by billionaire playboy Larry Ellison, is similarly cash-flush and never afraid to do sizeable deals. Ellison, who has played a leading role in the consolidation of the enterprise software market — in recent years Oracle has bought PeopleSoft, Siebel Systems, Hyperion Solutions and BEA Systems — will no doubt be eyeing the tech landscape for cheap assets.
There could also soon be consolidation in the computer and server market with Sun Microsystems looking ripe for the picking. Its share price has fallen 80% in the past 12 months. With a market cap of less than $4bn, Sun is just waiting to be snapped up. Though it has its own set of problems, computer maker Dell is a likely candidate to make a play for the troubled Unix and server vendor.
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First published as the column Technology & You in the Financial Mail of October 17 2008
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