Is Microsoft's Ballmer one lame dealmaker? You have to ask?

What has he been smoking? The bid for Yahoo that helped sink the market value of Microsoft by more than $20 billion in one day in early February is one of the latest in a string of brilliant acquisitions and major investment stakes Microsoft has initiated since CEO Steve Ballmer took over in 2000 that have been punished by the stock market as misjudgments.

"Some learn more quickly than others. It doesn't look like Mr. Ballmer is learning that quickly," says UCLA Anderson School of Management professor Richard Roll, lead author of a study that analyzed 11 years of merger and acquisition announcements by 2,589 CEOs at 1,740 U.S. companies.

Ballmer said Wednesday that Microsoft — which has given Yahoo's board a Saturday deadline to respond to its offer — is standing by its $44.6 billion bid and will "move forward" if Yahoo rejects it, Reuters reported. The original stock-and-cash offer was a 62% premium to where Yahoo had been trading. That is far above the average premium of about 20% for all deals, Roll says, although tech takeovers often carry fat premiums. Microsoft made the generous offer in anticipation of Yahoo's resistance, but when shareholders responded with sticker shock and bid Microsoft's stock price down, it continued a Ballmer pattern.

Of course, market responses can be wrong at predicting the expediency of acquisitions — and this deal is far from over. But studies have found that stock market reaction to an announced deal has a statistical correlation with the eventual operating cash flow, Roll says. Acquiring Yahoo could prove to be a brilliant move by Ballmer, but investors' reaction shows that, at this price, they believe otherwise.

'A very rational move'

Ballmer has his defenders regarding Yahoo. Saikat Chaudhuri, management professor at the Wharton School of the University of Pennsylvania, says Microsoft has been criticized for not taking more aggressive steps to compete with Google. "It's a very rational move. Yahoo and Microsoft combined could actually be some force against Google on the Internet," he says.

Roll's study looked at data from 1992-2002. Ballmer, 52, replaced Bill Gates, also 52, as CEO in 2000. At USA TODAY's request, Roll examined Microsoft's acquisitions to the present. Roll has been a leading expert on mergers and acquisitions since he published an influential study 22 years ago, The Hubris Hypothesis of Corporate Takeovers. His data are adjusted using what is known as cumulative abnormal return (CAR). CAR, in this case, is a statistical look at how much a stock price went up or down at the time of the M&A announcement, factoring out other influences such as action in the broader market.

Many CEOs make rookie acquisition mistakes, and the 11-year examination of 2,589 CEOs shows that those who do tend to learn and sharpen their skills because subsequent acquisitions were on average treated by the market as wiser.

Ballmer's first acquisition was software company VerticalNet, and the deal had a negative CAR of 11%, Roll says. His worst decision, as judged by market response, came several months later with the acquisition announcement of Great Plains Software. It had a negative CAR of 23%. The Yahoo deal had an immediate negative CAR of 8%, Roll says. Overall, Ballmer's CAR has been negative 4.6% vs. a positive 2.5% for the average of all CEOs. Ballmer's dealmaking has been improving, albeit gradually, Roll says. From 2003 until the Yahoo deal, he averaged a negative 2.8%.

"He's learned something because he's slowing down the pace of getting hammered," Roll says

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