MicroHoo: Deal Failure, Industry Rivalry, and Sources of Overbidding

42 Pages Posted: 17 Jul 2010 Last revised: 22 Oct 2014

See all articles by Nihat Aktas

Nihat Aktas

WHU - Otto Beisheim School of Management

Eric de Bodt

NHH-Caltech

Richard Roll

California Institute of Technology

Date Written: September 17, 2012

Abstract

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

Aktas, Nihat and de Bodt, Eric and Roll, Richard W., MicroHoo: Deal Failure, Industry Rivalry, and Sources of Overbidding (September 17, 2012). Journal of Corporate Finance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=1641206 or http://dx.doi.org/10.2139/ssrn.1641206

Nihat Aktas (Contact Author)

WHU - Otto Beisheim School of Management ( email )

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Eric De Bodt

NHH-Caltech ( email )

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Richard W. Roll

California Institute of Technology ( email )

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