Here comes merger mania!

Microsoft's stunning $44.6 billion bid for Yahoo is just the beginning.

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By Paul R. La Monica, editor at large

Google under pressure
Microsoft's $44.6 billion takeover bid for Yahoo ratchets up pressure on rival.

Microsoft's big bid for Yahoo
Redmond jolts Wall Street with an unsolicited $44.6 billion offer.
On this frantic Friday, what do you think is the biggest news on Wall Street?
  • Microsoft announces $45 billion bid for Yahoo
  • Exxon earns biggest quarterly profit ever
  • Government reports a job loss in January

NEW YORK ( -- Get ready for merger mania 2008!

Microsoft's (MSFT, Fortune 500) bold 1980s-style bear hug of a merger offer for Yahoo (YHOO, Fortune 500) is great news for all investors, not just Yahoo's, who are getting a 62% premium. This deal could usher in a wave of other strategic mergers this year as other top companies with pristine balance sheets to go hunting for beaten down competitors.

Wall Street seemed to recognize this Friday: Stocks were up modestly Friday morning despite a bleak jobs report.

"Many large U.S. companies are anticipating slower growth in the U.S. and abroad but at the same time they have large cash balances and low debt ratios. So it's very likely they will put that cash to work," said Steve Neimeth, a portfolio manager at AIG SunAmerica.

Yes, there are lots of negative headlines about the economy. And many companies have been issuing weak earnings reports and dour forecasts.

But that Microsoft publicly has shown a willingness to spend nearly $45 billion to save Yahoo is an extreme sign of confidence.

"This bodes well for the market. It's an endorsement of American business and the economy," said Rich Peterson, director of capital markets with Thomson Proprietary Research.

Microsoft is making a calculated bet that adding Yahoo to its growing stable of its Internet assets is the company's best chance at catching up to Google (GOOG, Fortune 500) in the online advertising race. And Microsoft is making this bet at a time when Yahoo is hurting. It is a savvy, opportunistic deal that could pay huge dividends over the long haul.

Yahoo is probably going to have no choice but to accept this deal. Even though it values the stock at a much lower price than where it traded a few years ago, such a big premium may be tough to turn down.

It's unlikely another company could scoop in with a white-knight competing bid. The only one that might make sense is AT&T (T, Fortune 500). With a $233 billion market capitalization, the price tag would not be prohibitively expensive and the companies have an existing partnership that they expanded on Tuesday.

But besides Yahoo, there are plenty of other companies that are reeling right now across a variety of industries, most notably the financial sector. We've already seen Bank of America (BAC, Fortune 500) scoop in to acquire Countrywide Financial (CFC, Fortune 500).

It would come as no huge surprise if another troubled mortgage lender, Washington Mutual (WM, Fortune 500), also doesn't eventually sell out sometime this year.

Bond insurer Ambac and online broker E*Trade have also been the subject of merger speculation lately.

Neimeth adds that the energy, healthcare and consumer staples (i.e. beverage and food companies) could see more deals this year.

So what's the biggest upshot of all this? Neimeth thinks that investment banks, which have also been crushed in the past few months due to bad subprime mortgage investments, could be in for a banner year.

"This is great news for the brokers that have exposure to the mergers and acquisition market," he said. "The market is ripe for more deals."

Thanks for a great week! Well, it's been a fantastic first couple of days for Morning Buzz. I predicted on Wednesday that Yahoo would soon get a takeover offer. And we've had more than 775 comments on our TalkBack pages for the first four columns.

I found it interesting that an overwhelming majority of the TalkBack comments posted about yesterday's column, where I suggested that now was a good time to get back into stocks, were from people predicting recessions, depressions and long, painful bear markets. Wow.

Fortunately, it seems that many of CNNMoney's readers don't share this doom and gloom attitude. According to a poll we also published, 61% of the more than 9,000 respondents said that now was a good time to invest in quality companies.

Finally, I'd be remiss if I didn't remind all of you that if we want the market to bounce back this year, it is your duty to root hard for the New York Giants this Sunday in the Super Bowl! According to the Super Bowl indicator, stocks usually go up when an old NFL team wins the big game. So a Patriots' victory would be bad news for the markets. And yeah, I realize that this is more of a statistical quirk and that no sane investor should use the indicator to make investment decisions. But nonetheless... go Big Blue!

What do you think? Will more big mergers follow Microsoft-Yahoo?  To top of page

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