& cplSiteName &

Microsoft Drops Yahoo Offer

Light Reading
News Wire Feed
Light Reading
5/3/2008

REDMOND, Wash. — 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 (NASDAQ: MSFT) today announced that it has withdrawn its proposal to acquire Yahoo!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
Yahoo! Inc.
701 First Avenue
Sunnyvale, CA 94089

Dear Jerry:

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.

Sincerely yours,

Steven A. Ballmer
Chief Executive Officer
Microsoft Corporation

Microsoft Corp. (Nasdaq: MSFT)

(6)  | 
Comment  | 
Print  | 
Newest First  |  Oldest First  |  Threaded View        ADD A COMMENT
Pete Baldwin
Pete Baldwin
12/5/2012 | 3:41:37 PM
re: Microsoft Drops Yahoo Offer
Interesting tone by Ballmer: "If we start a proxy fight, you'll team up with Google -- which, in turn, will ruin your paid search business and make Yahoo an undesirable acquisition. So we won't start a proxy fight."

Possible translation: "Why be so afraid of us when Google is your obvious enemy?"

Regardless.... given the number of things that tend to go wrong with megamergers, maybe it's for the best that this deal didn't happen. Time Warner/AOL all over again.
Stevery
Stevery
12/5/2012 | 3:41:36 PM
re: Microsoft Drops Yahoo Offer
Interesting tone by Ballmer: "If we start a proxy fight, you'll team up with Google -- which, in turn, will ruin your paid search business and make Yahoo an undesirable acquisition. So we won't start a proxy fight."

My read was that he left out the sentence: "And we sure as hell don't want to face a YHOO-GOOG team, because we can't compete with you guys as it is."
thebulk
thebulk
12/5/2012 | 3:41:36 PM
re: Microsoft Drops Yahoo Offer
i find it very odd that Microsoft would just drop the offer considering how aggressively they were pursuing it; at one point even saying they would go direct to share holders. i am willing to bet there will be a noteworthy developments in the near future, if not regarding Yahoo then some other significant web presents and an offer from Microsoft.
yarn
yarn
12/5/2012 | 3:41:34 PM
re: Microsoft Drops Yahoo Offer
My interpretation is that mr Yang would rather drive his company in the ground than sell it off to MSFT.
Anyway; YHOO is down ~18%, MSFT is up ~3.
DCITDave
DCITDave
12/5/2012 | 3:41:32 PM
re: Microsoft Drops Yahoo Offer
http://www.lightreading.com/bl...

Maybe Yang is enjoying the moment -- and getting ready to prove his doubters wrong -- but it sure is hard to tell from reading his blog.
IPnightly
IPnightly
12/5/2012 | 3:41:28 PM
re: Microsoft Drops Yahoo Offer
Craig, "Time Warner/AOL all over again." ... heh, heh... my thoughts exactly. Many of these companies are only worth what they are "perceived" to be worth... gone are the days of "capital assets". Microsoft will be able to buy Yahoo! for a penny a ton 3 years from now. (cynical? me? nooooo... ;^)
Featured Video
Upcoming Live Events
October 22, 2019, Los Angeles, CA
November 5, 2019, London, England
November 7, 2019, London, UK
November 14, 2019, Maritim Hotel, Berlin
December 3-5, 2019, Vienna, Austria
December 3, 2019, New York, New York
March 16-18, 2020, Embassy Suites, Denver, Colorado
May 18-20, 2020, Irving Convention Center, Dallas, TX
All Upcoming Live Events