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Published February 2013 | public
Journal Article

MicroHoo: Deal failure, industry rivalry, and sources of overbidding


On February 1, 2008, Microsoft offered $43.7 billion for Yahoo. This offer was a milestone in the battle between Microsoft and Google to control the Internet search industry. The announcement accompanied a substantial decrease in Microsoft's stock price. Investors apparently considered the bid too high and doubted Microsoft's ability to create value with Yahoo's assets (the announcement combined returns implied a total value destruction of $13.29 billion). Using the abnormal returns pattern of industry firms and customers, this article examines the sources of overbidding. Our analyses indicate that Microsoft's aggressive move is rooted in its rivalry with Google, but the personality traits of the involved CEOs might explain also a portion of the overbidding.

Additional Information

© 2012 Elsevier B.V. Received 13 April 2011, Revised 17 September 2012, Accepted 19 September 2012, Available online 28 September 2012. The authors thank Helen Bollaert, Jean-Gabriel Cousin, François Larmande, Michel Levasseur, Alexander Groh, Philippe Monin, Harold Mulherin (the editor), an anonymous referee, Richard Ruble, and Karin Thorburn, as well as participants of the European Center for Corporate Control Studies (ECCCS) finance seminar and the EMLYON corporate finance research seminar, for their many comments and suggestions. The second author acknowledges financial support from the University of Lille 2 (Finance, Banking, and Accounting Department) and SKEMA Business School.

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