Microsoft Withdraws Yahoo! Offer

May 4th
posted in

Microsoft decided to walk on the Yahoo! deal. After the sharp Yahoo! stock decline Monday, expect many shareholder lawsuits. The press release contained the following open letter to Jerry Yang.

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,
/s/ Steven A. Ballmer

Steven A. Ballmer
Chief Executive Officer
Microsoft Corporation

Any guess as to Yahoo!'s closing share price Moday? Vote on this poll and guess below. If you are the first person to guess within a dime you get a free month of access to our online SEO training program.

The short term upside for search marketers is that this lowers the odds of Yahoo! gutting itself by outsourcing paid search to Google.

Published: May 4, 2008

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Comments

May 4, 2008 - 3:26am

You should put another poll up guessing what the new Microsoft bid will be on Tuesday after the Yahoo shares drop. The most interesting thing to me is that Ballmer takes such time to point out why the Google/Yahoo team up, which Yahoo is banking on to save itself, is bad for the value of the company.

Does anyone want to sell their Yahoo shares now, I have a half eaten sandwich and half a can of coke.

May 4, 2008 - 4:41am

Thanks for the update Aaron; it is way better than what Yahoo has on its home page right now. I guess we all will have the (dis)pleasure to see Yahoo fade away in 2008. Good time to buy more GOOG!

May 4, 2008 - 6:39am

Sure I'll take a guess at Yahoo's stock price at close on Monday. $22.67

The question now is whether or not Microsoft is done with Yahoo or we'll be seeing a new offer in a few months. And I guess that will depend on how much revenue Yahoo can bring in over the next quarter.

May 4, 2008 - 12:28pm
May 4, 2008 - 1:20pm

I'm not sure whether I'm disappointed by this or not, it would have been good to increase the competition on Google but I don't like the idea of a Microsoft further Monopoly.

May 4, 2008 - 3:54pm

I think the majority going for $22 or under are perhaps being too harsh but we'll soon find out.

personally I think that Yahoo is a great buy for any company forward thinking 5-10 years on the internet even if they overpay, say $40 a share.

Expensive today but cheap in 5 years I think. Yahoo is still a quality brand on the web for the general web population (those reading this blog arenot 'general').

I'll be a buyer of YHOO at $22 and keep buying if it slips lower at every $1 down. I'm a long term holder though and am not interested in flipping for a $1-$2 profit.

Same sort of strategy really with Google shares, always a buyer on weakness and for me Goog/Yahoo and a few others are really a bet on the internet over the next 5-10 years. GOOG is still my favourite as I think they're in the front row seat for 'Cloud computing' which is a given.

May 4, 2008 - 6:20pm

Hi anley
You are bolder than I am. I expect Yahoo to keep bleeding marketshare, but I might pick up some Yahoo shares *if* they create a functional public facing keyword research tool. As a search marketer that is the tool I am currently using for Yahoo's barometer...that and the search marketing being at sem.smallbusiness.yahoo.com ... bad priorities going on in that company when half their revenues are on a subdomain of a subdomain.

May 4, 2008 - 6:05pm

I've voted for under 18. Yahoo is gonna die and then microsoft and google are gonna dissect and split the spoils of war.

May 4, 2008 - 7:57pm

I think the move Google Ads to be used by Yahoo was performed deliberately by Yahoo management to get rid off Microsoft.

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