Content Matters

Via Alley Insider comes this note that Microsoft (NASD:MSFT) is undervaluing Yahoo(NASD:YHOO), at least according to Bear Stearns analyst Bob Peck.
Peck suggests that the offer would value Yahoo at about 15x:

At $2.1-$2.2 billion of EBITDA, Microsoft’s multiple would only be paying 15x for one of the leading Internet properties and online advertising player.

But, as Blodget points out, 15x is only cheap if you think that 2008 is an aberration and that Yahoo will return to strong growth in 2009.

Meanwhile, Kara Swisher at All Things D suggests that Microsoft might come back with a lower offer, especially following Yahoo's weak January results and their newly announced severance plan. Kara suggests that:

If signs of business weakness at Yahoo worsen, several people suggested to me that Microsoft should make a slightly lower offer for Yahoo and promise the difference between its old bid and new one to Yahoo employees as a rich retention plan.

In another twist, the New York Times ran an interesting piece this weekend suggesting that Microsoft should drop its pursuit of Yahoo altogether and go after SAP (NYSE:SAP). In that article, Randall Stross argues that Microsoft should look to increase its strong position in business software by making a bid for SAP, much in the way that Oracle has grown through its acquisitions of BEA, PeopleSoft and i-Flex, among others. The corporate culture and business focus of the two companies are much more closely aligned, reducing risk of the deal.

In a similar vein, RBC Capital Markets analyst Robert Breza writes that Microsoft would be better served going after some higher growth businesses with strong upside:

Salesforce.com (NASD:CRM) at 100 percent premium is $12 billion, Omniture (NASD:OMTR) at 100 percent premium is $3 billion; and that leaves $30 billion to acquire Facebook.

Reed Elsevier (NYSE: RUK) has offered $4.1 billion ($50 per share) for risk management information provider ChoicePoint, a nearly 50% premium over yesterday's closing price.

ChoicePoint, which spun out of Equifax in 1997, has revenues of about $1 billion. The Company has focused on developing vertical market workflow applications, leveraging content plus analytics, primarily for risk management.  Reed Elsevier will merge ChoicePoint with its Lexis-Nexis division. Together with its Accurint database (acquired from Seisint in 2007), Lexis-Nexis will have a comprehensive suite of solutions for background checks, fraud detection and related tasks.

Reed also announced plans to divest its Reed Business Information trade magazine business.  Via PaidContent, on the conference call, Reed CEO Crispin Davis indicated that the Company is looking to protect itself from an expected advertising downfall as we move towards a recession.

TechCrunch reports that NewsCorp and Yahoo are working frantically to put final touches on a plan to merge Fox Interactive into Yahoo. According to TechCrunch, the details are:

• NewsCorp would spin off Fox Interactive, which includes MySpace, IGN, FoxSports.com, Photobucket and other online properties.
• Fox Interactive would be integrated into Yahoo, along with a sizable cash infusion from News Corp and a private equity fund
• The new Yahoo would be valued at roughly $50 billion, above the $45 billion Microsoft offer, with NewsCorp and the PE firm owning about 20%

The deal would not be simple, according to Arrington. Yahoo would still have to outsource its search biz to Google to make the terms work, which would be likely to raise antitrust issues. Meanwhile, Microsoft is expected to raise their bid to the $35 range this week (roughly $50 billion). There had been earlier rumors of NewsCorp seeking to bid on Yahoo but that they'd had trouble getting private equity interest. The coming week should be interesting.