Microhoo (or is it Yacrosoft?) gets interesting

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When the news came out Friday morning that Microsoft was making a $44.6 billion bid for Yahoo, I’ve got to admit that I sorta yawned. There’d been talk of this for months and months and months already, and the whole combination just seemed, as Lev Grossman put it, “weirdly uninteresting.”

The actual prospect of Microsoft buying Yahoo remains that. But the merger battle has of course turned totally fascinating. Yahoo executives don’t like the deal. The denizens of Silicon Valley, suddenly remembering after years of happy complacency that they’re supposed to hate and fear the Beast from Redmond, have been mobilizing to thwart the merger. Google has weighed in to pronounce that Microhoo might do evil, and is working behind the scenes to thwart the deal. Rupert Murdoch’s News Corp. has been brought into the conversation as a potential Yahoo savior. Time Warner’s stock (on which, I should disclose, I hold a bunch of mostly underwater options) has been see-sawing as investors try to figure out where AOL fits into all this. And the Industry Standard is back (in online form, at least) to tell us all about it! It’s just like 1999 again! (Except that the economy is probably in recession and the global financial system is collapsing and all that.)

That last gloomy reality is actually extremely relevant to Microsoft’s Yahoo pursuit. As of Dec. 31, Microsoft had $21 billion in cash and short-term investments sitting around waiting to be spent on, say, Yahoo shares. News Corp., just for comparison’s sake, had somewhere between $8 billion and $9 billion as of Sept. 30 (the line items on the two balance sheets are worded differently, but I think that’s the right comparison). Google had $14 billion as of Dec. 31.

Nine months ago, cash on hand didn’t matter so much. Any private equity firm worth its salt could borrow $21 billion at the drop of a hat (I’m exaggerating, but not crazily). Now it matters a lot. Borrowing big bucks to finance a rival Yahoo buyout is pretty much out of the question. It’s not by accident that Microsoft has picked the middle of a credit crunch to make this offer.