MicroHoo: Deal Failure, Industry Rivalry, and Sources of Overbidding
Skema Business School
Eric De Bodt
Université Lille Nord de France - SKEMA Business School
University of California, Los Angeles (UCLA) - Finance Area
September 17, 2012
Journal of Corporate Finance, Forthcoming
On February 1, 2008, Microsoft offered $43.7 billion for Yahoo. This offer was a milestone in the battle between Microsoft and Google to control the Internet search industry. The announcement accompanied a substantial decrease in Microsoft’s stock price. Investors apparently considered the bid too high and doubted Microsoft’s ability to create value with Yahoo’s assets (the announcement combined returns implied a total value destruction of $13.29 billion). Using the abnormal returns pattern of industry firms and customers, this article examines the sources of overbidding. Our analyses indicate that Microsoft’s aggressive move is rooted in its rivalry with Google, but the personality traits of the involved CEOs might explain also a portion of the overbidding.
Number of Pages in PDF File: 42
Keywords: Merger theories, Abnormal returns, Irrational overbidding, Rational overbidding
JEL Classification: G34Accepted Paper Series
Date posted: July 17, 2010 ; Last revised: October 2, 2012
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