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April 5, 2008 10:31 AM

Microsoft to Yahoo board: Deal now or we're coming for your jobs, lowering bid

Posted by Benjamin J. Romano

Microsoft this morning released a letter from CEO Steve Ballmer to Yahoo's board of directors, reiterating many of the points the company made through the media yesterday and today. Ballmer gave the board three weeks to come to the table and negotiate an agreement.

From the letter:

"If we have not concluded an agreement within the next three weeks, we will be compelled to take our case directly to your shareholders, including the initiation of a proxy contest to elect an alternative slate of directors for the Yahoo! board. The substantial premium reflected in our initial proposal anticipated a friendly transaction with you. If we are forced to take an offer directly to your shareholders, that action will have an undesirable impact on the value of your company from our perspective which will be reflected in the terms of our proposal.

"It is unfortunate that by choosing not to enter into substantive negotiations with us, you have failed to give due consideration to a transaction that has tremendous benefits for Yahoo!'s shareholders and employees. We think it is critically important not to let this window of opportunity pass."

Full text of the letter is after the jump.

Ballmer's letter to the Yahoo board of directors:

April 5, 2008

Board of Directors
Yahoo! Inc.
701 First Avenue
Sunnyvale, CA 94089

Dear Members of the Board:

It has now been more than two months since we made our proposal to acquire Yahoo! at a 62% premium to its closing price on January 31, 2008, the day prior to our announcement. Our goal in making such a generous offer was to create the basis for a speedy and ultimately friendly transaction. Despite this, the pace of the last two months has been anything but speedy.

While there has been some limited interaction between management of our two companies, there has been no meaningful negotiation to conclude an agreement. We understand that you have been meeting to consider and assess your alternatives, including alternative transactions with others in the industry, but we've seen no indication that you have authorized Yahoo! management to negotiate with Microsoft. This is despite the fact that our proposal is the only alternative put forward that offers your shareholders full and fair value for their shares, gives every shareholder a vote on the future of the company, and enhances choice for content creators, advertisers, and consumers.

During these two months of inactivity, the Internet has continued to march on, while the public equity markets and overall economic conditions have weakened considerably, both in general and for other Internet-focused companies in particular. At the same time, public indicators suggest that Yahoo!'s search and page view shares have declined. Finally, you have adopted new plans at the company that have made any change of control more costly.

By any fair measure, the large premium we offered in January is even more significant today. We believe that the majority of your shareholders share this assessment, even after reviewing your public disclosures relating to your future prospects.

Given these developments, we believe now is the time for our respective companies to authorize teams to sit down and negotiate a definitive agreement on a combination of our companies that will deliver superior value to our respective shareholders, creating a more efficient and competitive company that will provide greater value and service to our customers. If we have not concluded an agreement within the next three weeks, we will be compelled to take our case directly to your shareholders, including the initiation of a proxy contest to elect an alternative slate of directors for the Yahoo! board. The substantial premium reflected in our initial proposal anticipated a friendly transaction with you. If we are forced to take an offer directly to your shareholders, that action will have an undesirable impact on the value of your company from our perspective which will be reflected in the terms of our proposal.

It is unfortunate that by choosing not to enter into substantive negotiations with us, you have failed to give due consideration to a transaction that has tremendous benefits for Yahoo!'s shareholders and employees. We think it is critically important not to let this window of opportunity pass.

Sincerely yours,

Steven A. Ballmer
Chief Executive Officer
Microsoft Corporation

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Submit a comment

Posted by washington

11:23 AM, Apr 05, 2008

This classic Microsoft. If they tried to spend half the effort they do in hostile take overs towards providing bug-free products and good service, people would soon respect their business practices. If they destroy Yahoo, this will fuel the despite that is already building. All they need to do is focus on producing something works without flaws, instead of always being a control freak. With all their power crazed greed, I am surprised they have not offered Hillary a job by now. Yes, they bring money to the Northwest, but I am ashamed of their business ethics.......

Posted by Microsoft Heavy

12:03 PM, Apr 05, 2008

It sounds like you are either a FORMER Microsoft employee forced, a FORMER Yahoo stockholder that sold many years ago, or a Republican.

Which is it??

Posted by Microsoft Heavy

12:04 PM, Apr 05, 2008

It sounds like you are either a FORMER Microsoft employee forced out, a FORMER Yahoo stockholder that sold many years ago, or a Republican.

Which is it??

Posted by washington

12:17 PM, Apr 05, 2008

all of the above. i'm a bum

Posted by interested

12:26 PM, Apr 05, 2008

I must have missed the earlier hostile takeover efforts, washington. Maybe you can enlighten me on the names of the companies that you are referring to.

Posted by Innovator

12:41 PM, Apr 05, 2008

Why bother with Yahoo!? Its not as if Microsoft can get anything right with on-line business models, anyways. Microsoft loses money on everything except for Windows and Office. Everything else doesn't turn a dime in net profit. So why bother with buying a company that doesn't want to be bought?

On the other hand, I saw an article that suggested that Yahoo! should perform a hostile takeover of Microsoft. This was being done in the 90's, and Yahoo! is a company that could get a team together and tear Microsoft apart. Buy them, gut them, make a profit. No problem.

Oh, wait. Yahoo! has ethics.

Posted by interested

12:51 PM, Apr 05, 2008

Innovator, I'm not sure ethics is the reason. Between Gates, Balmer and many other large shareholders, Yahoo! would not be able to get MSFT shareholder approval for a hostile takeover. I think that is the big difference. Yahoo! management and board members don't have a significant ownership position in their company which is probably why they are not looking at the offer as a shareholder would. So, that leaves one to wonder what their motivation is and whether they do indeed have ethics since they have a fiduciary responsibility in regard to their shareholders.

Posted by slateralligator

1:07 PM, Apr 05, 2008

This is all just distraction to keep Microsoft shareholders from seeing what a complete failure Microsoft's search advertising business is. If I were a Microsoft shareholder, I would be hopping-mad about Microsoft's failure to execute on search advertising. I mean, how many billions of dollars did that drop into that hole?

I used to write software for a small company in search advertising. Our systems were a lot more usable and reliable than Microsoft's. We could not even integrate our systems with Microsoft's because they search advertising systems are pure garbage. Their systems don't scale, perform miserably and deliver low-tier traffic compared to Google. And don't even get me started on their sick joke of an API to try and talk to the thing.

A big part of their technical problems stem from the fact that everybody else in the business has embraced Linux and Open Source software practices on their backends. Microsoft continues to try and leverage their joke of an operating system (Windows) and database (SQLServer) whilst everybody else keeps kicking their can with superior infrastructure and practices. How long will Microsoft continue to beat those two dead horses to try and compete? Microsoft is the North Korea of the Internet world, there's no denying that.

For the amount of money Microsoft has spent on this search advertising endeavor, the results are truly pitiful.

Finally, in closing, we've seen what happens when large systems are controlled by committees of control freaks. Anybody remember the USSR? Yeah Microsoft, that's you!

Posted by az sr fan

1:33 PM, Apr 05, 2008

If Msft was truly predatory, it would immediately withdraw the offer, watch Yahoo stock price sink to about 10 and then jump in. As a stockholder, I was appalled at the generous offer.

Posted by Jim

6:07 PM, Apr 05, 2008

Its about time Microsoft started talking tough to Yahoo!, There board over there is missing a great chance to combine with MSFT