Management and the Technology Professional – B302

Case study answer 3

In working out a correct plan of action for deciding whether or not to accept the client, a number of factors concerning the acquisition must be taken into account.

It is important to first consider whether or not the client is worth taking (the starting point of our tree), if no then no income will be made, if yes then we can traverse the tree into point 1.2 (MS take over)

The bottom line is that the client will generate income (if taken on) regardless of if Yahoo! Stays an independent company or if Microsoft acquires it, only the profit margin alters.

The figures are £90,000 for income before tax/ outgoings.

If Yahoo stays independent the income from the client is: £65,000.

If Microsoft acquires Yahoo, the income becomes: £35,000.

Even with Microsoft taking over, 35 grand is a sizable income for a 4 month project. Additionally it is worth taking on board that a small income is better than no income at all despite the risks.

The risk of Microsoft having a successful bid is largely dependent on the view of the shareholder and to a lesser extent, the staff. If the staff and share holders vote yes, then the board room will act accordingly, otherwise will reject the bid.

It is no secret that Yahoo are behind Google in terms of its search & email products and as such are having to decrease its work force by 1,000 people to keep viable (1) and are ahead of Microsoft in the search engine industry (2), showing their software and techniques may be better. This increases the risk of the staff being pro-takeover (as it secures cash-flow and ensures employment) but may not convince normal share holders.

Microsoft currently have a poor reputation with the general public (3) and share holders may not want to risk devaluing their shares from the public migrating away. However Microsoft are keen to combine forces with other search engine companies to try and break Google's dominance (1), and should they (by taking over Yahoo and its sub brands) actually over take Google - the advertising revenue will soar (even if the rest of the site may receive less general use) resulting in a higher turnover for the share holders to cash in on with dividends.

If however Yahoo’s management has deemed Microsoft’s offer to be too low or detrimental to Yahoo (i.e, winding down the brand and massive lay offs) they may reject the offer without consultation. As Microsoft’s offer is unsolicited and ‘friendly’ it is assumed that Microsoft would be offering a fare price (otherwise they would have gone down the route of a hostile take-over).

With the above in mind, the next part of the tree should break into 3 branches for probability (likely takeover, possible and unlikely).

With the tree aside - it is also to take a company aspect (i.e, if Microsoft took over), they would expect to see pro-active departments bringing in income for them after such a massive take over deal. Having a contract with a client, albeit less than if it was handled via Yahoo alone is better than having no deal at all, especially if Microsoft would look down the line of lay-offs to pay for the buyout.

With all of the above taken into account, I would deem it important to go ahead with the deal. At best case scenario, the monies received would be £65,000 and at worst case £35,000. Although the MS takeover would incur additional stress from contract re-negotiation, it is only a 4 month contract and at the time of re-negotiation, should the client wish to continue the advertising campaign, the full £65,000 would come in (as there would be no new contracts / administrative work required) which would be very lucrative, and if the client didn’t decide to renew, the 35 grand is still far better than nothing.


(1) - Source - http://www.economist.com/business/displaystory.cfm?story_id=10632491
(2) - Source - http://www.seoconsultants.com/search-engines/
(3) - Source - http://business.timesonline.co.uk/tol/business/industry_sectors/technology/article1529988