This morning I had coffee with one of the guys at Abunga.com. It was a great conversation and really refreshing to see some new business leaders developing in the East TN area. Of course, the conversation wandered over to the possible (imminent) Yahoo/Microsoft merger. I love mergers and think they are really fascinating to observe, both from a practical and academic viewpoint. When done right, they are a win-win situation for both sides. They can also be the realization of an entrepreneur’s worse nightmare scenario– turning over your creation to watch it get run into the ground. While I’m not ready to offer any opinions on this situation, I do think Microsofts’ Live Search and MSN platforms are pitiful compared to Yahoo or Google. I also predict that this will breathe some life back into the struggling tech industry.

Here are a couple of points for consideration:

• $44.6 billion is almost a 70% premium over the closing price of Yahoo the day before (from A VC)
• No financial buyer in their right mind will compete with a $44.6 billion offer
• Few strategic buyers have the resources, need or depth of service necessary for acquireing Yahoo
• This is even more proof that the real legacy of computers and the digital age is not hardware or software… but content.
• Google is now on the receiving end of a “the enemy of my enemy is my friend” cliche’

Also, I’d expect to see a lot of house cleaning for the portfolios of early technology venture funds. Competition should decrease with two of the three giants combining. That is combined with the overall slowing economy and pessimism on the side of analysts, managers, talking heads, media, most Democrats, and some Republicans.

Lastly (and only if you are interested in finance geek stuff), this provides example of semi-strong market efficiency at work. Nothing happened internally at Yahoo after the close of business on Thursday, January 31. The company didn’t change management, introduce a new product, report abnormal returns, etc. The only thing that happened was someone offered to purchase the stock… which has now bid up to the offer. Interestingly enough, yesterday and today the stock started bidding down slightly as the trade volume leveled off. The point… the market is moving to a new point of balance based on the simple supply and demand concept. And no one had to regulate, adjust, etc. Hmmm… perhaps there is a lesson to be learned here on the federal economic level?

Here are the thoughts of some much smarter folks:

• Fantastic “Scorpion and Frog” analogy from LearnToDuck.com
• Marc Andreeson’s six points on why this merger shouldn’t be scary
• Bill Burnham on why the merger is bad