Brier Dudley's Blog
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May 3, 2008 5:11 PM
Posted by Brier Dudley
Pardon the format -- straight from Microsoft -- but here's the statement and Steve Ballmer's letter to Jerry Yang calling it off. Or is it just a negotiating tactic?
REDMOND, Wash. -- May 3, 2008 -- Microsoft Corp. (NASDAQ: MSFT) today announced that it has withdrawn its proposal to acquire Yahoo! Inc. (NASDAQ: YHOO).
"We continue to believe that our proposed acquisition made sense for Microsoft, Yahoo! and the market as a whole. Our goal in pursuing a combination with Yahoo! was to provide greater choice and innovation in the marketplace and create real value for our respective stockholders and employees," said Steve Ballmer, chief executive officer of Microsoft.
"Despite our best efforts, including raising our bid by roughly $5 billion, Yahoo! has not moved toward accepting our offer. After careful consideration, we believe the economics demanded by Yahoo! do not make sense for us, and it is in the best interests of Microsoft stockholders, employees and other stakeholders to withdraw our proposal," said Ballmer.
"We have a talented team in place and a compelling plan to grow our business through innovative new services and strategic transactions with other business partners. While Yahoo! would have accelerated our strategy, I am confident that we can continue to move forward toward our goals," Ballmer said.
"We are investing heavily in new tools and Web experiences, we have dramatically improved our search performance and advertiser satisfaction, and we will continue to build our scale through organic growth and partnerships," said Kevin Johnson, Microsoft president for platforms and services.
Below is the text of the letter from Microsoft CEO Steve Ballmer to Yahoo! CEO Jerry Yang.
May 3, 2008
Mr. Jerry Yang
CEO and Chief Yahoo
701 First Avenue
Sunnyvale, CA 94089
After over three months, we have reached the conclusion of the process regarding a possible combination of Microsoft and Yahoo!.
I first want to convey my personal thanks to you, your management team, and Yahoo!'s Board of Directors for your consideration of our proposal. I appreciate the time and attention all of you have given to this matter, and I especially appreciate the time that you have invested personally. I feel that our discussions this week have been particularly useful, providing me for the first time with real clarity on what is and is not possible.
I am disappointed that Yahoo! has not moved towards accepting our offer. I first called you with our offer on January 31 because I believed that a combination of our two companies would have created real value for our respective shareholders and would have provided consumers, publishers, and advertisers with greater innovation and choice in the marketplace. Our decision to offer a 62 percent premium at that time reflected the strength of these convictions.
In our conversations this week, we conveyed our willingness to raise our offer to $33.00 per share, reflecting again our belief in this collective opportunity. This increase would have added approximately another $5 billion of value to your shareholders, compared to the current value of our initial offer. It also would have reflected a premium of over 70 percent compared to the price at which your stock closed on January 31. Yet it has proven insufficient, as your final position insisted on Microsoft paying yet another $5 billion or more, or at least another $4 per share above our $33.00 offer.
Also, after giving this week's conversations further thought, it is clear to me that it is not sensible for Microsoft to take our offer directly to your shareholders. This approach would necessarily involve a protracted proxy contest and eventually an exchange offer. Our discussions with you have led us to conclude that, in the interim, you would take steps that would make Yahoo! undesirable as an acquisition for Microsoft.
We regard with particular concern your apparent planning to respond to a "hostile" bid by pursuing a new arrangement that would involve or lead to the outsourcing to Google of key paid Internet search terms offered by Yahoo! today. In our view, such an arrangement with the dominant search provider would make an acquisition of Yahoo! undesirable to us for a number of reasons:
-- First, it would fundamentally undermine Yahoo!'s own strategy and long-term viability by encouraging advertisers to use Google as opposed to your Panama paid search system. This would also fragment your search advertising and display advertising strategies and the ecosystem surrounding them. This would undermine the reliance on your display advertising business to fuel future growth.
-- Given this, it would impair Yahoo's ability to retain the talented engineers working on advertising systems that are important to our interest in a combination of our companies.
-- In addition, it would raise a host of regulatory and legal problems that no acquirer, including Microsoft, would want to inherit. Among other things, this would consolidate market share with the already-dominant paid search provider in a manner that would reduce competition and choice in the marketplace.
-- This would also effectively enable Google to set the prices for key search terms on both their and your search platforms and, in the process, raise prices charged to advertisers on Yahoo. In addition to whatever resulting legal problems, this seems unwise from a business perspective unless in fact one simply wishes to use this as a vehicle to exit the paid search business in favor of Google.
-- It could foreclose any chance of a combination with any other search provider that is not already relying on Google's search services.
Accordingly, your apparent plan to pursue such an arrangement in the event of a proxy contest or exchange offer leads me to the firm decision not to pursue such a path. Instead, I hereby formally withdraw Microsoft's proposal to acquire Yahoo!.
We will move forward and will continue to innovate and grow our business at Microsoft with the talented team we have in place and potentially through strategic transactions with other business partners.
I still believe even today that our offer remains the only alternative put forward that provides your stockholders full and fair value for their shares. By failing to reach an agreement with us, you and your stockholders have left significant value on the table.
But clearly a deal is not to be.
Thank you again for the time we have spent together discussing this.
/s/ Steven A. Ballmer
Steven A. Ballmer
Chief Executive Officer
Posted by Long term stockholder
5:34 PM, May 03, 2008
I love it! Thank you, Steven.
Sincerely, a stockholder for the long term.
Posted by Mark
5:44 PM, May 03, 2008
Microsoft=33.50 Yahoo wants 37+
Cash out at 35.00......
Don't force them to use Vista....
Give 5 Xboxes per employee.....
Posted by Yeri Jung
1:12 AM, May 04, 2008
Smart move! Yahoo is not worth $37/share. Even $33 is generous. Yahoo shareholders could have reaped BILLLIONS. But because Jerry and his board want "just a little more", the shareholders have just lost all they could have had. This is what I call greed. Now do they still want this Jerry guy to lead them? Steve: Wait till Yahoo drops to $15, then come back and offer Jerry $20/share. That's a more reasonable price.
Posted by Terrance
12:36 PM, May 04, 2008
The new offer appears to have been a calculated risk taken by MS. The original offer was considerably higher than the value of the acquisition, and MS then made the mistake of taking a firm public stance, setting deadlines, with the possibility of a hostile takeover. Should they have tried to either pressure the sale or pursue a takeover bid, MS would look like the bad guy, not to mention the possibility that more than one government would launch some sort of investigation into monopolistic practices or something. If they were to have walked away from the original offer, they would have looked like they were trying for some sort of market manipulation that could devalue Yahoo further, and come off appearing as never having been that interested in the purchase in the first place. By upping the bid another five billion, knowing it was still billions shy of what Yahoo founders wanted, it's OK to walk away now...and the result will likely be shareholder dissatisfaction, the majority of which weren't happy about Yahoo not accepting the original bid in the first place. Naturally, the majority of shareholders do not own the majority of Yahoo, so they will feel resentment that the minority, ultra-rich of the stockholders were possibly pressuring Yahoo founders to eek out a larger portion for the lion's share. But the majority shareholders could potentially control the near-future...legal action, dumping, voting, etc.
If I'm correct, a rather devilish plan...
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