February 16, 2008
The risky business of holding Mihoo shares
It’s hardly surprising that Legg Mason is the only major Yahoo shareholder to speak out on Microsoft’s takeover bid thus far – strongly hinting it would be happy to sell if Microsoft raised the price.
It is the only one of the top institutional shareholders in Yahoo without a major stake in Microsoft as well. It can therefore see a clear profit from the deal, while the rest have been buried in silence as they carry out frantic calculations on how much their Microsoft holdings may be hit by buying Yahoo.
Financial risk-management analysis group RiskMetrics has also been doing the maths. It says the 13 per cent drop in Microsoft shares since it made the bid public on February 1 “does not bode well for the long-term value creation potential of the proposed transaction.”
It cites a 2004 study showing that in three-quarters of the deals that get an immediate thumbs-down in the stock market, the company concerned is still underperforming the market index two years later.
RiskMetrics lists the cross-shareholdings, starting with Capital Research & Management’s 11.36 per cent stake in Yahoo worth $4.076bn and 5.98 per cent share of Microsoft worth $16.4bn.
Legg Mason is next with a 6.59 per cent stake in Yahoo, worth $2.364bn, but only a 0.02 per cent stake in Microsoft, worth $66m.
Vanguard, Barclays Capital and State Street all have substantial holdings in both.
“We can expect shareholders who own both companies to pressure Yahoo directors to extract a material sweetener from Microsoft…that isn’t seen to destroy the perceived benefits of the merger,” RiskMetrics predicts.
