Lance Wiggs

Bugger - Microsoft has withdrawn from the Yahoo takeover offer. Microsoft upped the price to $33 per share (from $29 odd), which was a $5 billion increase. Yahoo said “no thanks - we want $37 per share” and so Mirosfot walked away.

On Monday, US time, expect:

Yahoo’s shares to fall - and pretty far

Microsoft’s shares to rise, if not immediately, then over time..

In the next weeks we can expect some aggressive lawsuits from lawyers representing Yahoo shareholders, and some  relieved Yahoo employees and executives.

After that it would not be surprising to see round 2.0 - with Microsoft coming back with another offer.

It was always a bad combination in business terms, but in financial terms the Yahoo board has just committed a cardinal sin - walking away from an offer that valued the company at substantially more than it is worth. They really have opened them and their insurers up for a mammoth lawsuit from shareholders, and it is hard to see a plausible defense.

Why “bugger” when the deal made no sense to customers? Because I’m short Microsoft shares - betting that they will fall. I thought that Ballmer would stick it out. However we should remember that Ballmer is a pretty good game theory practitioner, and so much more could happen.

As Jim mentions, Buffet’s Berkshire Hathaway is involved in a $23bn deal where Mars is buying Wrigley. Mars is $22bn and Wrigley $5bn in annual sales, so while big this isn’t a huge swallow for Mars, and both companies are well run and run on a brand basis, so merging should be ok.

There are two other things interesting about this deal.

Firstly, while it is no surprise that Wrigley is a classic Buffet company - a massive recession proof brand, we also know that privately held Mars is another. The proposal is for Wrigley to be a subsidiary of Mars while Buffet takes a minority shareholding - $2.1bn worth at a discounted price. Is this a way for Buffet to start playing with Mars? Where could this lead?

Secondly Berkshire Hathaway’s role is to bring  (2nd tier) subordinated debt to the table - which is a nice way to raise money in an environment where the traditional funders are running scared. The WSJ mentions that Goldman and JP Morgan are also involved in the financing, but are we going to see more Buffet cash floating around as debt?

It’s pretty obvious that a better offer for Yahoo is not out there, as Microsoft has the wonderful combination of being cash-rich and desperate - and can outbid anyone else out there.

But Yahoo directors do not want to lay with the lumbering giant.

So this week Microsoft first whispered that the offer may be lowered, then had an eventless meeting with Yahoo, and finally then gave an ultimatum to Yahoo directors to play nice or they will start a proxy fight, and at a lower price:

The substantial premium reflected in our initial proposal anticipated a friendly transaction with you. If we are forced to take an offer directly to your shareholders, that action will have an undesirable impact on the value of your company from our perspective which will be reflected in the terms of our proposal.

A proxy fight is an expensive and bruising messy endeavour - which has its own set of strange rules. Basically Microsoft gets to send documents and market to every Yahoo shareholder, aiming to usurp the Yahoo board and put in their own candidates that will recommend the deal goes ahead. Each shareholder gets to choose between taking the money and rejecting the suitor, and Yahoo’s board also markets to the shareholders.

The fiduciary duty of a board of directors is to maximize value of a company to it’s shareholders. Microsoft’s approach is clever - if they win the proxy battle, which they will as it is a simple financial decison for investors, then the Directors can be blamed for the loss in value between the current offer and the reduced offer that Microsoft is threatening would occur in that hostile takeover. If Microsoft lose the proxy battle, then the directors are even more exposed.

The Directors could go to jail for that, but more realistically they are exposing themselves and Yahoo to a class action suit from angry shareholders - there are plenty of lawyers out there that will want to do this.

Last word to Steve Ballmer:

It is unfortunate that by choosing not to enter into substantive negotiations with us, you have failed to give due consideration to a transaction that has tremendous benefits for Yahoo!’s shareholders and employees. We think it is critically important not to let this window of opportunity pass.

My US Share portfolio (green) in 2007 was up 63.5% versus the S&P500 index return of 3.53%. A great year, and I did sell down a bit around the peak, which hit 77%.

Can I do it again?

This year to Friday the 28th of March - I’m up just 12.6%, but the index is down 10.4%. so you could say I’m 23% ahead, but that’s today. I’m publishing this after a good run - things can turn quickly, as I found in late Feb.

For the story of last year, check my previous missives - the last one when the portfolio was up 72%, and I also talk about getting out of eBay (at $39 - they are now $30, visited $25) and Apple (at $163, now $143 after visiting the $115 range).

While the Apple shares initially went up, they then went way down, while the eBay shares just went down. In retrospect it was great timing - and based on some news that had come out for each company, and a shaky market based on the cheap debt crisis.

However I screwed up by buying more Apple shares last year when they were still really high, but made up for it by buying a bunch of eBay shares this year when they were very low and some Apple shares and options when they were low as well. I got a little too levered in February this year - so the green line shows a lot of volatility. I’ve since lowered my leverage.

I’m still, as always, very short Microsoft - both with short selling the stock and with options. I’m hoping the merger with Yahoo! goes through as the combination is not good and should see more value destroyed. MSFT has dropped from $34 in the last post to $28 now - a healthy return for those put options especially.

I’m still short Equity Residential - a rental property owner, but I did sell out of them completely earlier this year, and am getting back in as (over) confidence is returning to the markets after the Fed movements. I’m believe there is a good chance that the recent interventions are band-aids, and there are plenty more bad stories to come.

Being long and short means I’m less exposed to the violent market fluctuations, but I am exposed to days when things are rosy for Microsoft and bad for eBay and Apple. I’m betting the reverse is more common.

Finally, in a down market it pays to go to companies that sell basic stuff - so I’m following my own advice and I’ve invested for the first time in Berkshire Hathaway. I expect to build up my holdings in Warren Buffet’s company - it is a long term buy and hold in a down market.

All this is in USD of course, and the currency has subsided a bit. The amounts are nothing special, but I’m having lots of fun.

Rod just pointed us to Sharesight - a downunder focused portfolio manager website. The website looks to be yummy goodness - simple to use and so forth.

I was initially pretty skeptical though - what use is another portfolio manager when you can do things pretty simply yourself, or with the likes of Yahoo?

Yahoo

So first let’s look at Yahoo. They let you construct a portfolio (or as many as you like) using share data from a whole bunch of exchanges - not just Australia and NZ. Here they are:

I set up a fake portfolio for Australia/NZ  in about 3 minutes. It lets you enter in the date that you acquired the shares, and will calculate the total return for you. You do need to remember how much you paid for it though.

You can create your own view of your portfolio, and, of course, plonk it on your myYahoo home page - handy if you use Yahoo mail. Pretty nice - and free, but old school.

Google’s offering is stunning.  Not only is coverage of NZ (and Au) shares now there, but it is a much more web 2.0 application - dead simple to use.

From an investor point of view - i.e. “how are the companies that I invest in doing?” the tools are excellent - with fantastic news sitting beneath flexible and comprehensive portfolios.

Google

you can switch the portfolio view very easily - here a fundamentals view:

(fake data)

You can add in transactions (with dates) and track overall performance on you iGoogle homepage - which, unlike Yahoo!, I actually use.

It doesn’t seem to bring in historical dividends, and doesn’t track options, but watch this space - Google moves fast. Overall I’m gushing - but really this is a lot better than ladt time I saw it, and perhaps even better than my own etrade account.

Best thing - Google tracks when earnings releases arrive, and you can add them to your google calendar. How simple!

eTrade

eTrade (US version) lets me track stocks across 5 different countries -  NZ (or even Australia) is not one of them. eTrade shows me my portfolio, including options, with market values and different views.  Additionally they have plenty of tools to track performance, though they could be better as I don’t get credit for timing my moves in and out of the market. It’s also a US-centric website, and as such everything is based on the US tax year - which is the calendar year. Running my NZ tax this year is going to be entertaining - though I can easily export my eTrade Transactions to excel and go from there.

Sharesight

And that’s where Sharesight has a market. It’s a great way to handle working out your NZ capital gains tax on your investments in Australia and NZ.

Overall the website looks entertainingly useful and fun. Plomk in your purhcase dates and amounts, and Sharesight calculates all the splits, dividends, tax credits and the like to give you an overall portfolio return.

Check out the Sharesight tour and video.

However - it is not all that useful yet for investors that invest in other lands - and we all should be doing so to have a diversified portfolio. There is space of course for sharesight to expand to accept transactions and calculate tax liability from other markets. So when Sharesight brings in foreign (US) stocks I’d be keen to give it a go.

But not at the current fees.

At the current fees I’d simply sign up for a month at the ned of each tax year, work out the tax and then get out straight after. There seems to be no benefit (and certainly a cost) from using Sharesight for day to day management versus either Google or your own online share broker.

Moreover the fees are tiered, and those top tiers are brutal, and kick in at very low usefulness Who owns less than 5 shares? who doesn’t want a tax report?

I’d chop them up and make a single tier, give an annual fee option along with the monthly one and forget about charging $39 for stuff that is “coming soon”. I also believe that the appetite for fees is much lower than portrayed. I’d be going along the lines of $10 or $20 per year, $50 at a stretch.

That’s the other pain - I wish that Google and eTrade could play together so that my transactions could be imorted from eTrade to Google. Similarly Sharesight is hopefully working on one click importing of whatever the local online share trading houses export. I have only a few stocks, but for someone with s portfolio of 20-30 stocks, purchased at differnt times, it would be a real pain to enter them all in. Of course it would be even more pain to work out the tax without Sharesight.

The business case

So  overall if I had an NZ portfolio of stocks I’d probably use Sharelight next month on the 30 day free trial to calculate my tax liability - and then not sign up. I believe that the pricing structure is all wrong - a yearly fee is better, and it should be around $20.

However the market is pretty small. The number of people in New Zealand that want to manage a portfolio would be a percentage of the  number of people that go to financial sites. There were about 31000 UB’s at directbroking, 22,500 at interest.co,nz and a paltry 15,000 odd at sharechat.co.nzduring February. I’m assuming naively that The directbroking customers have some sort of tracking tool, but that it isn’t great and so a percentage of people will come over. Let’s be wildly generous and say 10% come over. That’s 3,000 people.

The sharesight blog implies there are 730,000 shareholders in NZ. That’s a bunch, but most of those would be passive, suing someone else to manage their portfolio, or dead (literally). The Sharesight service is aimed at more active and engaged traders.  So let’s say they can get 5% of the overall shareholders in NZ - that’s about 35,000 people.

ok - so from 3,000 to 30,000 people at, for me, a fair price of $20 per year - that’s $60,000 to $600,000 per year.

If you believe in the $20 per month model, then multiply that by twelve to transform that $20 per year to $20 per month, and we get $720,000 to $7.2m in annual revenue. That upside would be much much lower at that sort of pricing - so my range would be more like $60,000 to $1m per year in the first years.

That has to support 4 owners/directors/principals and an outsourced interaction/ development firm. That’s means not a lot of custard to start. Launching into a massive bear market isn’t going to help - people trade a lot less when the market is falling.

What’s the upside?

Firstly, and obviously, it’s around getting more customers - either Kiwis with overseas portfolios, or overseas folk. The second one is tough, as Google is tough to compete against. More customers means more subscription income, and this is an easily scaled business.

Secondly, with their great usability I’d sign up very quickly if they extended into being an online broker - allowing me to trade shares. that’s a different busines model, but they’d take a chunk of the market pretty quickly.

Thirdly - there’s an obvious exit to a broker or to an internet business media player.

Finally - there is something about Sharesight being a custodial system. National bank are about to start changing a staggering 1% of portfolio value for “Custody fees”. That’s a significant amount, and if Sharesight can bring people over  then it is game over. They seem to think they can, but they need to really spell it out for people in single syllable words.

Well done guys - lovely execution, a business model with potential and some good PR to kick things along.  Fix the pricing though.

Stunning NYTimes article about Vista - it seems that Microsoft employees and board members knew that Vista was, well, not so good. There’s even a class action suit….

“Last month, Judge Marsha A. Pechman granted class-action status to the suit, which is scheduled to go to trial in October. (Microsoft last week appealed the certification decision.)

Anyone who bought a PC that Microsoft labeled “Windows Vista Capable” without also declaring “Premium Capable” is now a party in the suit. The judge also unsealed a cache of 200 e-mail messages and internal reports, covering Microsoft’s discussions of how best to market Vista, beginning in 2005 and extending beyond its introduction in January 2007. The documents incidentally include those accounts of frustrated Vista users in Microsoft’s executive suites.

I love being short Microsoft..

The housing crash is cascading around the world, and the dire predictions are coming true. Here’s the latest chart from The Economist - check out Ireland on the bottom. That’s a crash, not a “balanced slump”.

Meanwhile Trade Me just surpassed 70,000 property listings, on the back of signing up one of the last few major real estate agents holdouts.

Things to look out for in the next few months are:

Trade Me listings volumes to peak as the remaining real estate companies sign up, and then settle as the market slows

Increasing time to sell and lower average prices (duh), especially at the top end

A drop in the newspaper pages dedicated to housing advertisements and articles, lowering the income for the likes of APN and Fairfax

Real estate agents switching careers as they have less commission to share around the industry

and a fair few had luck stories from speculators that got in at the peak and/or didn’t get out in time

a general downturn in optimism & perhaps the internal economy

That sense of déjà vu is the ghost of 1987 creeping back.

Falafulu Fisi asks an excellent question to the previous post on Auckland Airport:

“Aren’t both Auckland Airport & Telecom private companies? Why would you want to say that the government is an interventionist regarding the CPPIB attempt to buying shares in the Auckland Airport but not saying the same thing about Telecom?

I am a defender of property rights, and the state has no right at all to meddle in the affairs of private businesses such as Telecom or Auckland Airport. That decision to sell or not to sell is entirely up to the rightful owners (ie, the Airport Shareholders) and not those Commissars in Wellington .

That was a great question, but I feel I am being entirely consistent here.

I am a fan of Govnerment intervention when the market is so inefficient and the company is out of control that the other stakeholders (beyond shareholders) are under threat, and unable to do anything about it due to monopoly power.

I’ve been wandering around NZ this week and frankly the broadband situation is beyond a joke - it is shameful crime that has left us in the dark ages of the internet.

There is a very well run dot com that I visited yesterday that is unable to even hold phone calls over Skype to the UK or USA as their connection keeps dropping out. This means increased costs, but even more importantly, that they are not part of the global internet business community that lives, wheels and deals on Skype. (Try putting together a 6 way phone call using traditional services at a moment’s notice.)

Now their customer base is almost entirely overseas, but they should be able to operate from NZ. But despite Wellington’s other advantages they would be not without cause if they uprooted and headed for the first world.

Government intervention into Telecom is the only way that the primary stakeholders (customers and the economy) could get the service that the country needed. There were plenty of warnings, but the head was stuck firmly in the sands of short term profits.

There are plenty of other monopolies and duopolies in NZ that understand how to play the game when you own a market. You set your prices well below monopoly prices, you are great to your customers and you know if you step out of line then the ComCom and the Government will be all over you.

Auckland Airport has not exhibited poor behaviour - they are running a good business, and are even upgrading the domestic terminal. An equivilent case for intervention would be if they put prices up, ran the terminals into the ground (and so spoiled NZ’s image and tourism numbers) and milked the dying cow.

All that is proposed for Auckland Airport is a change of ownership, which has no material impact on the relationship between the corporation and it’s stakeholders. It’s not as if the new owners are going to roll the airport up, put it on the back of a ship of unusual size and transfer it to a field outside Toronto. This intervention is uncalled for from the customers that use the airport, and to compound it has a negative effect on FDI for NZ.

Where is Infratil while this is going on? They are conflicted - on the one hand they own Wellington Airport and would love a piece of Auckland, so they should keep quiet. However on the other hand they own Preston Prestwick (edit - thanks Tylersdad) Airport South of Glasgow in Scotland, and they should be deeply protesting our Government’s ham-sized fists which will make it much harder for them to buy other foreign airports in the future.

Score one for protectionism, and minus several ranks of the economic freedom index for New Zealand, after the Government intervenes to prevent a Canadian fund from buying into Auckland airport.

When the market drops by 2% after a new protectionist law is created it should be obvious to everyone the impact of ham-fisted interventionist Government policy.

This law means that the Government has reserved the right to change investment rules on a whim, and so the risk of investing in New Zealand has just risen substantially. Foreign investors will apply a higher risk rating to NZ, and so will demand higher returns for their investments. That means less foreign money coming in, and ultimately, lower growth.

Is this what the govenrment is promoting? Lower growth?

There are plenty of ways to protect “strategic assets”. Changing the investment laws is amongst the worst of them.

Warren Buffet’s yearly missive is out. Essential reading for anyone interested in investing. Here are some tasty snippets:

“You only learn who has been swimming naked when the tide goes out – and what we are witnessing at some of our largest financial institutions is an ugly sight.

It’s better to have a part interest in the Hope Diamond than to own all of a rhinestone.

if a business requires a superstar to produce great results, the business itself cannot be deemed
great.

Going to any other flight-training provider than the best is like taking the low bid on a surgical procedure.

The worst sort of business is one that grows rapidly, requires significant capital to engender the growth, and then earns little or no money.  Think airlines. 

(My behavior resembled that of a politician Molly Ivins once described: “If his I.Q. was any lower, you would have to water him twice a day.”)

A line from Bobby Bare’s country song explains what too often happens with acquisitions: “I’ve never gone to bed with an ugly woman, but I’ve sure woke up with a few.”

The best anecdote I’ve heard during the current presidential campaign came from Mitt Romney, who asked his wife, Ann, “When we were young, did you ever in your wildest dreams think I might be president?”  To which she replied, “Honey, you weren’t in my wildest dreams.”

Former Senator Alan Simpson famously said: “Those who travel the high road in Washington need not fear heavy traffic.”  If he had sought truly deserted streets, however, the Senator should have looked to Corporate America’s accounting.

I should mention that people who expect to earn 10% annually from equities during this century – envisioning that 2% of that will come from dividends and 8% from price appreciation – are implicitly forecasting a level of about 24,000,000 on the Dow by 2100.  If your adviser talks to you about double-digit returns from equities, explain this math to him – not that it will faze him.  Many helpers are apparently direct descendants of the queen in Alice in Wonderland, who said: “Why, sometimes I’ve believed as many as six impossible things before breakfast.”  Beware the glib helper who fills your head with fantasies while he fills his pockets with fees.

A fellow was on an important business trip in Europe when his sister called to tell him that their dad had died.  Her brother explained that he couldn’t get back but said to spare nothing on the funeral, whose cost he would cover.  When he returned, his sister told him that the service had been beautiful and presented him with bills totaling $8,000.  He paid up but a month later received a bill from the mortuary for $10.  He paid that, too – and still another $10 charge he received a month later.  When a third $10 invoice was sent to him the following month, the perplexed man called his sister to ask what was going on.  “Oh,” she replied, “I forgot to tell you.  We buried Dad in a rented suit.”

Every day is exciting to us; no wonder we tap-dance to work.  But nothing is more fun for us than getting together with our shareholder-partners at Berkshire’s annual meeting.  So join us on May 3rd at the Qwest for our annual Woodstock for Capitalists.  We’ll see you there.

At 9:30 we will go directly to the question-and-answer period, which (with a break for lunch at the Qwest’s stands) will last until 3:00.

The USA tends to allow more things in business than we do in New Zealand or Australia. For example, our laws on food are strict, and strictly enforced. Similarly the legislation and Commerce Commission hold companies to account for their behaviour.

In the USA they are a bit more laissez-faire.  Food is under regulated and under enforced. Also, each State of the US regulates it’s companies differently, and so companies have gravitated to Delaware as a nice place to be regulated from. The regulations are friendly, and the judges and lawyers are efficient.

But in the US consumers have teeth, and cozy legal deals can come unstuck.

Two pension funds are suing Yahoo for rejecting Microsoft, an looking to create a class action:

“The plaintiffs asked a Delaware Chancery Court to block the Yahoo board from completing any such transaction with those companies, to force it to reconsider Microsoft’s offer, and to block it from implementing defensive measures that would render the company unattractive to potential buyers.

This is serious. When a company is in play - under offer - the Directors have a fiduciary duty to maximise the return to the shareholders. That means playing hard to get may work in the short term, but you’d damn well better cut a deal if it is as lucrative as the one on offer.

The ramifications of not doing so include jail time. Being a Director is a serious thing, and a board with an offer on the table should quickly form a committee of all the external directors to consider the offer, and take the action that will see best dollar return to shareholders - even if it means destruction of the business.

Rather than accept the offer, Yahoo’s board rejected the offer and installed a poison pill - to make it harder for Microsoft to buy. This has lowered the value to shareholders of Yahoo (although as I and others commented on Rod’s blog, poison pills are a relatively empty threat), opening those Directors up to liability from shareholders that saw potential money disappear.

The winners here will be the lawyers. The losers will be Yahoo shareholders if the deal does not go ahead, and Microsoft shareholders if the deal does go ahead. That leaves plenty of shorting opportunities on these two lousy companies.

Not bad - strong profit growth of 40% versus last year, with Trade Me and Digital leading the way.

Trade Me showed $32m in EBIT, which is for the 6 month period to December 2007. That, apparently, puts them at tracking to hit the $60m required to complete the $50m earn out to March 2008. (That from the Dom Post - but if they really know then they have inside info., which they can’t, so they are guessing)

Actually it could be tight, and it all depends on how well Trade Me did in the 3 months to June 2007, and how well they do in the three months to March 2008. Basically revenue and profit in a rapid growth company move up month by month, and, while a mid year snap shot showed the right run rate, it isn’t over.

If the April-June 2007 period was not so good, then the Jan-March 2008 period needs to be extra good to compensate so that the whole year meets target. (It’s so much easier to predict things in the Nickel game)

Now January is a slack month downunder, but then things pick up - so it will be an interesting run to the end for Trade Me folk.

Arcgk. I really cannot comment any more, though I’ve sadly been out of it for a while. Good luck guys.

Bugger. That was an obvious short on the housing market, in spite of a very interesting game changing revenue model.

The Yahoo and Rio Tinto deals have one thing in common, besides being abnormally large.

They are both being initiated by new CEO’s where the predecessor has just departed.

This makes it  seem that they are trying to stamp their own mark on their companies, and that is perhaps true.

It is probably likely that at least one of these deals were thought of before the previous CEO left, and this information  should emerge with time.

So it comes down to the real motivation. Are these deals really value adding, or are they merely ego boosting?

I’m happy that the Rio/BHPB combination is value accretive. It’s a logical combination that has some pretty well understood and easily gained synergies. The post merger plan will be relatively simple and quick. Marius Kloppers inherits a well oiled machine, one that he had a substantial part in building, and one that can absorb Rio Tinto’s assets.
I’m not at all confident that the same applies to Microsoft and Yahoo. It’s perhaps 10 years too late for this deal - and better deal right now could have been a leveraged play at market leader Google. CEO Steve Balmer has run an increasingly complex and increasingly poorly performing business. He should be looking to clean up his own house before embarking on a buying spree.

OK - so I’m almost always picking the bearish side for investments, but this one seems pretty clear. It’s a case of a lousy company buying a lousy company.

First let me explain what the implicatons of that are, and secondly lets breifly look at why Microsoft and Yahoo will be a hard combination to execute.

Part of  the Evergreen work (essentially In Search of Excellence with numbers) we conducted at McKinsey was a piece by  Prof. Habir Singh, who studied M&A’s, alliances and JV’s for the companies covered in the Evergreen analysis.

There were 160 companies in the Evergreen work, with qualitative and quantitative data from 10 years collected, structured and analysed for all of them. We defined ‘winner’ and ‘loser’ companies using total return to shareholders versus peer companies, but really it didn’t matter what financial measure you used.

The results from Habir’s piece of work were simple - Great companies do more frequent, lower value and higher value creating deals. They are generally more active in M&A and JV’s than loser companies, and far more likely to buy companies worth 20% or less of their own value. Loser companies take on bigger targets, and are likely to have associated eating disorders.

Almost all of the winner’s deals were value creating, while loser company deals were almost always neutral or value destructive.

In summary - loser companies that tried to buy their way out of trouble by buying other loser companies still lost.

Mre recently Habir features in this article, which asks why do 50-80% of mergers fail. REflect on that number for a second. That’s right, most mergers fail.

According to Sikora, the kinds of problems companies face with mergers range from poor strategic moves, such as overpayment, to unanticipated events, such as a particular technology becoming obsolete. “…

…many analysts view clashing corporate cultures as one of the most significant obstacles to post-merger integration.

… Harbir Singh, who has done extensive research on mergers, says that the crucial distinguishing factor between success and failure in a merger is a sense of objectivity on the part of executives — a “realistic outlook” that needs to be maintained from the initial transaction through the entire integration process. The danger, it seems, is when executives “fall in love” with the idea of the acquisition, wanting it to work no matter what the cost.

So - back to Microsoft and Yahoo.

Microsoft used to be a great company - they attracted the best employees, made a bunch of millionaires, and were really the place to be.

In latter years the mojo has long gone, and the bureaucracy has kicked in. The disaster that is Vista summarises what happens when great people are poorly led and managed. Once forlorn  Apple is now Microsoft’s nemesis, along with Google.

Meanwhile Yahoo is in trouble as well, and the same Google is causing a lot of the trouble.

By combining the two companies analysts have pointed out that the new share of the search market will be 30%. But that’s a declining 30%, and more importantly leaves unanswered a myriad of technology questions.

And therein lies the problem. There is considerable overlap between the internet aspects of Microsoft’s business and Yahoo. The logical thing to do in such a combination is to kill one version of each product - say Hotmail/Yahoo Mail - and keep the other.

Is this really adding value to customers, or is it just taking out a competitor to gain a larger market share and to reduce costs? (That’s not to mention the issues that YahSoft woud have with migration of accounts.)

The problem here is the post merger management to consolidate the two companies is going to be tremendously difficult. It’s difficult because there are few real synergies, and it is difficult because both are performing poorly right now.

So although recent weeks have been bad, I’m pretty happy being short Microsoft right now.  If the deal goes through then I’ll beef up that short position becasue there are serious indigestion problems ahead.