Bear Stearns' Advice To Microsoft

BURLINGAME, CALIF. ---Uh oh! Guess who has been one of the senior advisers to Microsoft executives on its proposed takeover of Yahoo!, quietly counseling on how to do such a big deal?

That would be Bear Stearns Chief Executive Alan Schwartz.

As Silicon Valley wakes up on Monday and assesses the fallout from the Bear Stearns fiasco, no one will be thinking through the implications more carefully than executives in Redmond, Washington.

Bear Stearns will go down in history as a victim of its own aggressive borrowing. That legacy might well give pause to Microsoft's chief executive, Steve Ballmer. Yes, he wants to pummel Google and snatch some of the advertising dollars that he feels should flow to the north instead.

But, particularly in a fragile economy, the risks of undertaking a $44.6 billion (give or take) takeover could be staggering, even to a company with Microsoft's heft.

For all its aggressive sales tactics, Microsoft has a long history of fiscal caution. The Yahoo! deal marks the first time the software giant has planned to borrow cash to complete a deal. Co-founder Bill Gates can't be thrilled with watching Ballmer drain the company's cash. He didn't get so rich by buying at the top of the market.

Yahoo! will close its first quarter of 2008 on March 31--and will report the results in late April. Yahoo! might have inadvertently done Microsoft a favor recently by extending the date for nominating candidates to its board of directors until a time 10 days after Yahoo! announces the date of its next annual meeting. That gives Yahoo!--and now Microsoft--a bit more time to watch the markets before trying to close a deal.

It was, after all, Wall Street's reaction to the result from Yahoo!'s last quarter, announced January 29, that drove down the company shares to a 52-week intraday trading low of $18.58 on January 30. Microsoft took advantage of what looked like a bargain at the time and offered a $31 a share--or $44.6 billion--in a half-cash, half-stock deal for Yahoo!.

After briefly trading a bit above $30, Yahoo!'s stock has gone back to sagging. It closed on Friday at $26.71.

Other significant Bear Stearns investment banking clients in 2007 included General Motors and its GMAC financing group, the Walt Disney Co. and the Blackstone Group's Real Estate Opportunity Fund. It also advised Pfizer on the sale of its consumer health care business to Johnson & Johnson and advised Symbol Technologies on its acquisition by Motorola.

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