In February, Microsoft offered to purchase Yahoo for $31 a share in a deal valued at 44.6 billion dollars. Yahoo declined the deal and has seen its stock pay the price for refusing the deal. I think Microsoft should make a play for Time Warner. Time Warner’s stock is currently trading at $7.28 per share and has a market cap of 26 billion dollars. Microsoft has discussed purchasing Time Warner subsidiary AOL in the past. AOL is the 4th largest player in the online search engine market. I think Microsoft should not only purchase AOL, but all of Time Warner.
Microsoft could offer $10.00 per share for Time Warner which is a 3 dollar premium over the current price. I don’t think that Time Warner shareholders would allow management to turn this deal down. Microsoft would pay roughly 37 billion dollars to acquire the media conglomerate. In purchasing Time Warner, Microsoft would gain valuable media assets such as Warner Brothers, HBO and Turner Broadcasting to name a few. The only negative is that Time Warner does have a significant amount of debt on its balance sheet. I think that Microsoft is a strong enough company to absorb Time Warner’s debt. Microsoft is in an enviable position with over 24 billion in cash and very little debt.
Microsoft could then use the AOL unit to become a larger player in the online search market. This would further weaken Yahoo’s position in the search market allowing Microsoft to purchase them at an even lower price. Microsoft could spin off the entertainment units of Time Warner or wait until financial conditions improve and sell them to other media organizations such as CBS, Fox or Disney at a higher price. I think either way its a great deal for Microsoft.
I agree that this is the best time to buy undervalued stocks that you experts identify, but do you think the worse of times have peaked yet? Will stocks be cheaper next year?
@Renee
I am not sure if stocks have bottomed or not yet. I have seen many experts predict a market bottom. The truth is no one knows. The Dow and S&P 500 may dip lower over the next few months. I do know that some companies are selling too cheaply. Stocks are not trading on fundamentals now but on fear. If i buy a company and the stock drops below my purchase price and nothing has changed fundamentally in my thesis for investing, I buy more. I think that in 2012 these prices will be seen as cheap.