Management and the Technology Professional – B302

Case study answer 3

As a software engineer at Yahoo I am familiar with the proposed deal of the Microsoft take over of Yahoo. I have read articles and information which has been passed down through the company. When conducting decision tree analysis there is probabilities associated with the project options, the main decision is to start or cancel the project. There are two project options which need to be considered, the project being successful if started and the takeover bid being successful. The take over bid is relevant whether the project starts or not.

With regards to the project, I have given the probability of success 95% and project failure 5%. I feel this is a fair representation as Microsoft are a huge organisation and they would have adopted ventures like this before. I feel if they want to achieve something like this they can, as they have the skilled people and financial banking in order to do so. The probability of the bid success relies on Microsoft’s ability to buy yahoo. Microsoft have many qualities which they can use to convince Yahoo to accept the takeover bid. Shareholders would be convinced as they would get a good share price stated in the Economist article; to be a 60% premium. Holders will also have faith in the new company as Microsoft is already a large accomplished company. It is also likely that there is going to be no outside interference from the government as they generally steer clear of these types of scenarios. For these reasons I have rated the bid success at 80% and the bid being unsuccessful at 20%. Having read an article in the Economist, it states that Microsoft is determined to catch up with Google in the online search and search advertising markets, so I feel their determination to do so will make this combined project bid a success.

The present values are calculated based on Present Value = Expected Value / (1 + K)^n
K is the interest rate, which I found on loan.co.uk at 17.9% Apr, 17.9% Apr / 4 months = 6%.
N is the number of events in time. This project only has a start and end so only N values of 1 and 2 are used.
The decision tree has the following routes and occurring net present values;
Start Project -> Project Successful -> Bid Successful -23585 + 80100 + -17800 = 38715
Start Project -> Project Successful -> Bid Unsuccessful -23585 + 80100 = 56515
Start Project -> Project Unsuccessful -23585
Cancel Project -> Bid Successful 0
Cancel Project -> Bid Unsuccessful -80100

In summary, after conducting the decision tree analysis, I would start the project takeover as the only way Microsoft stands to gain is in company growth, market share and to ultimately begin to compete with Google. By not starting the project Microsoft would not benefit from a successful bid to takeover Yahoo and are likely lose money which would be regarded as a failure. By not undertaking the project Microsoft is almost certainly not going to gain. To achieve something there is always initial expense, in this case starting the project. The primary goals of Microsoft company growth in the internet search and advertising business can only be achieved if the project is started. It is highly likely that a bid for Yahoo will be accepted due to reasons explained above. Previous experience in buying large online advertisers includes Aquantive in May 2007, Microsoft paid $6bn which was its biggest acquisition. With the experience of a successful deal like this I do not see any reason why Microsoft will not repeat history with Yahoo. With these factors, the project is expected to succeed, resulting in Microsoft making a large profit and achieving the primary project goals. I believe the amount Microsoft are offering to pay for the shares, combined with the intelligence, ability and financial backing Microsoft have, can only provide a winning combination capable of successfully completing the take over.

All things considered, as a software engineer at Yahoo I would like to be a part of this major organisation mergence as I feel it can only improve me as an individual working in an even bigger high profile company. I feel my skills will improve as I will be able to learn from other intelligent engineers at Microsoft and gain knowledge of techniques which have seen Microsoft Windows become such a dominant piece of software.

Bibliography
http://news.bbc.co.uk/2/hi/business/6670227.stm