Most mergers make no sense to me.
Investment bankers and arbitrageurs see mergers as a way to get fees or quick profits. The urge to merge can cause management to create a “Potemkin Village” rather than a company the words “Cendant” and “McKesson-HBOC” come to mind here. Many Internet companies are being built to be bought, not succeed. And then there’s the AOL-Time Warner mess.
All that said, there’s one merger I’m sorry won’t happen. That merger is Yahoo-eBay.
Let’s start by looking at the players. Yahoo’s Tim Koogle has always said he was building a media company, and he has succeeded. The company, now worth over $85 billion, offers a host of free services, including shopping. But its foray into auctions hasn’t worked well, and its acquisition of Broadcast.com came just before rights holders decided they weren’t going to give anything away anymore.
eBay is worth $24 billion, and it has just taken (and beaten back) the best shots of its best-positioned potential rivals Yahoo, Amazon and Fairmarket. But it remains vulnerable to crooks, to lawsuits, to hubris. Anyone can open an auction house, and the death of 10,000 cuts is still a possible outcome to this fairy tale.
AOL and Time Warner are looking for the other’s assets to complete their strategy, but Yahoo and eBay are genuinely complementary. Yahoo is big internationally it dominates markets in Asia and Europe its rivals have barely entered. On the other hand, eBay lacks international presence, but it has proven it can stand toe to toe with Yahoo within its niche, and win.
Yahoo’s management has a broad strategic vision, while eBay’s is focused, so there should be no arguments over control here. Yahoo can afford to pay a 50 percent premium for eBay, if the deal’s done for stock, and still not dilute the control Yahoo management exercises over the whole.
Then, of course, there is an alternative. While Yahoo is in a position right now to give eBay shareholders a good deal, a market crash could leave eBay vulnerable to a host of less pleasant prospects, most notably becoming part of AOL-Time. If Yahoo doesn’t strike before the clock strikes midnight on AOL-Time, Steve Case will, in a friendly or unfriendly way. The result wouldn’t be pretty, because AOL-Time would be too busy with its own business to focus on the new acquisition it would just be another merger trophy, a backwater.
Microsoft could also buy eBay, in a deal for both stock and whatever cash can be found inside the couch cushions of Redmond (maybe $10 billion I hear good things about those couches). In that case, again, eBay is a tiny part of a much larger whole.
Yahoo and eBay are both vulnerable if they remain separate. If they get together they have enough market heft to buy Disney three times over with enough left for News Corp. Sounds like a good deal to me.