MicroHoo: Deal Failure, Industry Rivalry, and Sources of Overbidding
42 Pages Posted: 17 Jul 2010 Last revised: 22 Oct 2014
Date Written: September 17, 2012
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.
Keywords: Merger theories, Abnormal returns, Irrational overbidding, Rational overbidding
JEL Classification: G34
Suggested Citation: Suggested Citation