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Microsoft Withdraws Proposal to Acquire Yahoo

  Submitted by sonic2000gr Microsoft 36 Comments

Earlier this year, Microsoft offered to purchase search engine company Yahoo, however, the board of directors of Yahoo shot the offer down beause it ‘massively’ undervalued the company. This ignited an acquisition dance that took a few months, and rumours were abound as to what either of the two would do next.On April 21st, Microsoft set a three week deadline for Yahoo to join them at the negotiations table. Apparently, talks broke down Saturday, when Yahoo aimed for USD 37 per share, while Microsoft did not want to offer more than USD 33. Consequently, Microsoft has withdrawn its proposal to acquire Yahoo, and detailed its reasoning by publishing the letter Microsoft CEO Steve Ballmer sent to Yahoo CEO Jerry Yang.

In the letter, Ballmer writes:

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 USD 33.00 per share, reflecting again our belief in this collective opportunity. This increase would have added approximately another USD 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 USD 5 billion or more, or at least another USD 4 per share above our USD 33.00 offer.

Ballmer went on to explain that they will not take the offer to Yahoo’s shareholders, which would lead to a protracted proxy contest and and an exchange offer, while in the meantime, Yang would make Yahoo a less desirable option for Microsoft – by pursuing a deal with Google. Ballmer lists various reasons why that would make Yahoo a less desirable option. One of those reasons is even a tad bit ironic:

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.

Ballmer ends the letter by stating that he “still believe[s] 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,” followed by a slightly bitter, “but clearly a deal is not to be.”

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36 Comments

  1. 2008-05-04 8:08 am
    handy

    Nice to see that MS cannot buy marketshare this time… Sorry nothing more to say about this ;)

  2. 2008-05-04 8:11 am
    jensa

    /me pops open his finest bottle of bubbly

  3. 2008-05-04 8:22 am
    JonathanBThompson

    On the one hand, perhaps if Microsoft had pursued the acquisition (and who can say right now it won’t happen at a later date at a lower price after the market reacts, and depending on future performance taken into account?) I might have been lucky enough to be first given a retention bonus (1.5 billion total, don’t know how it’d be distributed) and then get laid off and get several months salary. However, I also wonder what Microsoft would do both in terms of cultural changes as well as technology changes: I only use Windows XP on my laptop at work as (sometimes) a terminal to my two Linux development boxes that are used on the project I’m part of that’s open source-based. Without going into too much detail, simply put, SQL Server doesn’t even come close to what product I’m working on will do…

    It’d suck to be stuck changing technology just for the sake of being all some internal technology, and perhaps Microsoft has learned from the past that it isn’t always wise to change. However, if Microsoft does eventually buy Yahoo! they’ll find themselves in the odd predicament of being a paying customer of quite a few seats of Red Hat Enterprise Linux ;)

  4. 2008-05-04 8:22 am
    unclefester

    It is always better to be embraced by MS than destroyed. Nice knowing you yahoo.

  • 2008-05-04 8:55 am
    atezun

    This is far from the end of it. All we have here is that Microsoft is publicly withdrawing their bid while they wait for Yahoo’s stock to crash and burn come Monday and let it plummet for several weeks. When the stock is at what they consider an acceptable price they’ll go back to a now humbled Yahoo with a much worse offer than what they’re getting now.

    This is nothing but a negotiation tactic. Ballmer wants Yahoo (Lord knows why?) and like it or not, Ballmer’s gonna get Yahoo.

    Edited 2008-05-04 08:57 UTC

    • 2008-05-04 11:14 pm
      Milo_Hoffman

      People keep saying this over and over in various forums.

      But it shows they obviously have no clue how the market works.

      Sure, yahoo’s stock will go down next week.

      But guess what, if word gets out that Microsoft is interested again, the stock price will go right back up like magic.

      People who seem to think Microsoft can just wait and swoop in to get a bargin just don’t understand the stock market at all.

    • 2008-05-05 12:26 am
      google_ninja

      Honestly, their bid was WAY more then Yahoo is worth. The thing is that yahoo has a very distinct and unique corporate culture, which is probably why it was refused.

      This is nothing but a negotiation tactic. Ballmer wants Yahoo (Lord knows why?) and like it or not, Ballmer’s gonna get Yahoo.

      He wants yahoo because yahoo owns almost as much of the web as google does (which, incidentaly is probably why google isn’t trying to buy them. Last thing they want is monopoly status).

      MS has had a puzzling internet strategy. They (correctly) identified the importance of web control before almost anyone else did, however they have not really been able to land a solid strategy for competition.

      • 2008-05-05 12:33 am
        sbergman27

        They (correctly) identified the importance of web control before almost anyone else did, however they have not really been able to land a solid strategy for competition.

        Despite the fact that they have always had so much control over the client platform. One would not have thought it possible for them to drop this ball.

        • 2008-05-05 12:50 am
          google_ninja

          They had control of the client platform, but then they didn’t do anything with it for a decade or so.

          They aren’t the only ones though. Sun came up with applets, but totally blew it with AWT and swing. Flash filled the space for years, but it was never designed for anything but interactive movies, and is not only a bitch to program, but will bring even a high end machine to its knees.

          Yahoo didn’t go the way of client control, they went the way of webapp control (also the way that google has been going). But instead of dropping the ball, they have been doing a decent job of it (at least until recently)

  • 2008-05-04 9:12 am
    sonic2000gr

    If nothing else, as a FreeBSD user I am relieved…

    Yahoo is a major supporter of the FreeBSD project. I could not imagine FreeBSD sites running on Windows 2008 servers ;)

  • 2008-05-04 10:45 am
    robinh

    You can almost feel the hatred for Goole in Balmer’s letter – amazing stuff. Balmer strikes me as the kind of guy that could easily loose his sense of perspective, and Microsoft’s petulance in this affair suggests I’m right.

  • 2008-05-04 10:51 am
    Kroc Silver Supporter

    1. Wait for share price to drop following the pull-out.

    2. Put in a new offer, for less or equal

    3. Profit!

    Microsoft have only just started. If they can’t have Yahoo, making Yahoo look weak is just as good; afterall, why do you think Microsoft was so public about this? They’re gaming the press, the analysits, the journalists and all for the purpose of softening up Yahoo.

    • 2008-05-04 3:40 pm
      Nelson

      I agree wholeheartedly, Microsoft has never backed away from an aquisition. Ever.

      It’s taking Yahoo piece by piece:

      It’s causing strife among the internal executives, cherry picking talented developers with lucrative sign on bonuses, and making their stock go down the gutter with things like this.

      Microsoft in the end, wants Yahoo in it’s entirety. They have an IMMENSE user base and are the #1 email provider with Live Mail right behind.

      This thing is far from over, now what Microsoft will do is wait for their stock to plummet, for Stockholders to file even more suits, then buy Yahoo for pennys on the dollar.

      • 2008-05-04 4:21 pm
        sbergman27

        Today, in 2008, it is actually possible to overestimate what MS is capable of. With a free hand to employ all their dirty tricks of old, they might succeed. But they are now squarely within anti-trust territory regarding anything they do regarding Yahoo. And while the US might turn a blind eye to their manipulations, the EC, bless their souls, will not.

        • 2008-05-04 8:29 pm
          Nelson

          What, exactly is illegal about what took place here?

          Absolutely nothing.

          • 2008-05-04 9:15 pm
            sbergman27

            What, exactly is illegal about what took place here?

            Nothing yet. (Did I imply that something was?) What I am saying is that eyes are watching, and Microsoft’s freedom to act is somewhat restricted compared to what it would be otherwise. It used to be that they could count upon a blind eye being turned to their activities. But no longer.

            Considering that they have been officially declared to hold a monopoly on desktop operating systems by an American court, the fact that desktop computers running Windows are the primary clients of Yahoo’s servers, and the fact that MS is already a major player on the portal/search engine field, their moves regarding Yahoo fall squarely within the scope of potential antitrust infringements. By that I mean that they must be careful not to commit any actual improprieties.

            Edited 2008-05-04 21:21 UTC

      • 2008-05-05 9:36 am
        marafaka

        Rational. Microsoft sucks. Always.

    • 2008-05-05 5:43 pm
      Karitku

      You really don’t understand much on business world I see. Firstly they need to do public bidding on board of directors, otherwise its called “hostile takeover”, this is something you cant hide (public annoucment is standard procedure since it’s way to make message to Yahoo shareholders which wouldn’t otherwise maybe know it at all). Secondly Ballmer states that Microsoft isn’t interested on “hostile takeover”, this means buying shares from shareholders, ignoring Yahoo board of directors. Hostile takeover is always much riskier and harder plus it would also mean that FTC wouldn’t allow it as easily as public takeover. Not to mention regulations.

  • 2008-05-04 11:29 am
    J.R.

    To be honest I get the feeling that Yahoo is not acting in the best interest of their stockholders, but rather do what the board wants for personal reasons. Yahoo is in my opinion a sinking ship as google and others are fighting for marketshares. Its been years since last time I met anyone that used Yahoo for…anything. Today everyone I know uses live or google for email, search, and whatnot.

    • 2008-05-05 1:16 pm
      helf

      Funny, I see gobs of people everyday that use Yahoo!Mail, flickr, etc. etc.

      ok, it’s just those two services… but still ;P

      Edited 2008-05-05 13:16 UTC

      • 2008-05-06 4:29 am
        TemporalBeing

        Funny, I see gobs of people everyday that use Yahoo!Mail, flickr, etc. etc.

        ok, it’s just those two services… but still ;P

        Also, don’t forget that a lot of ISPs have started using Yahoo! as their back-end provider for search, e-mail, etc. too. Verizon is a good example of this.

    • 2008-05-06 4:27 am
      TemporalBeing

      To be honest I get the feeling that Yahoo is not acting in the best interest of their stockholders, but rather do what the board wants for personal reasons. Yahoo is in my opinion a sinking ship as google and others are fighting for marketshares.

      I think they are doing a great job. My primary e-mail account is Yahoo! and will be (now) for the foreseable future. If Microsoft had succeeded, I would take my business elsewhere. From the various reports, I’ve heard that is the attitude of a lot of their staff too – they don’t want to work for Microsoft.

      Its been years since last time I met anyone that used Yahoo for…anything. Today everyone I know uses live or google for email, search, and whatnot.

      I have a gmail account too, but it’ll never be my primary account. Why? The e-mail management system. Labels are nice, but they don’t do the job that folders do. If anything, I’d like Labels AND folder, but if forced to chose – I choose folders.

      Oh – and btw, my peak e-mail/day (excluding SPAM!) was about 1200 a few years back. I think I”m down to about 200 now (again, excluding SPAM). So please don’t try to say how much better labels can do the job b/c they can’t. When you get that much e-mail, the only solution is folders with rules for pushing the e-mail into them. Get a folder that has too much unrelated information in it, and it becomes a hard mess to sort out. Labels are good in theory – and probably great from a database design – but suck in actual usage of large amounts of data to an individual user.

      So no..gmail will be there in the background, but that’s where it’ll always be. It’s great for mom & pop when they get an e-mail once in a while, or for people that want a junk account, or even someone that is only on a few low-volume e-mail lists, but once you get into some major usage it quickly deteriorates – and is especially hard to set-up as easily if you are transferring from another account.

  • 2008-05-04 5:16 pm
    viator

    Maybe yahoos stock price will drop. I doubt by much, and then M $ will come in with an even LOWER offer, and then Google will swoop in with M $ original offer and take it right from under their noses lmao.

    Edited 2008-05-04 17:19 UTC

    • 2008-05-04 7:38 pm
      PlatformAgnostic

      There would be regulatory concerns if Google did that.

    • 2008-05-04 7:53 pm
      StaubSaugerNZ

      Even if the acquisition is successful I’m not sure that it would work out well for Microsoft in the short term. Have you seen their balance sheet lately? Still great, if you are anyone but MS, but eroding rapidly.

      If they burn up too much cash on this deal they’ll have a lot less maneuver room later – especially since Windows shipments declined a whopping 24% in the last quarter See:

      http://worldfinancial.blogspot.com/2008/04/microsoft-earnings-decli…

      Funding the purchase with a stock issue probably won’t please their current shareholders, nor impress the Yahoo shareholders – so a fair chunk of cash will necessarily be required. Cash they’re gonna need.

      • 2008-05-06 4:34 am
        TemporalBeing

        Even if the acquisition is successful I’m not sure that it would work out well for Microsoft in the short term. Have you seen their balance sheet lately? Still great, if you are anyone but MS, but eroding rapidly.

        If they burn up too much cash on this deal they’ll have a lot less maneuver room later – especially since Windows shipments declined a whopping 24% in the last quarter See:

        http://worldfinancial.blogspot.com/2008/04/microsoft-earnings-decli…

        It’s one of the ways you can tell that Billy G has stepped aside. To my understanding, he always kept enough money around in cash to run the company for 2 years without a single sale. Balmer is/was heavily risking that with this purchase attempt – it would have depleted all their cash.

        Funding the purchase with a stock issue probably won’t please their current shareholders, nor impress the Yahoo shareholders – so a fair chunk of cash will necessarily be required. Cash they’re gonna need.

        Well…per Microsoft – Balmer and Gates are their biggest share holders. Paul Allen divest[s|ed] as quickly as possible; and even Gates has stepped up how much he sells a day – now around 10k shares. So…not sure, but I think the primary holders of Microsoft could care less about it.

  • 2008-05-04 11:17 pm
    Milo_Hoffman

    People seem to keep saying over and over that ‘the stock price will go down next week’ and microsoft can swoop down and get a bargin.

    This is rediculus. Sure yahoo’s stock price will go down next week because it now looks like Microsoft will not be offering $35/share for it.

    But guess what, if the market gets wind of another bid the stock price will shoot RIGHT BACK UP. Microsoft has already shown its willing to pay $35 or so so the market will expect something close to that.

    Everyone saying this “Microsoft can just wait for a bargain” just does not understand the stock market.

  • 2008-05-05 12:07 am
    satan666

    Why are you guys so concerned about Yahoo’s market value going up or down? Whatever Microsoft will pay that will be the real value of Yahoo. Yahoo’s price is going down. So is its real value. The more time passes the better for Google. By the time Microsoft buys Yahoo, its real value and market share will be lower, and Yahoo’s price will be lower. The only winner is Google. And that’s just great news for consumers. I’d rather see Google doing well than Microsoft.

    Microsoft showed that once it became a monopoly, it stopped innovating, forcing customers to buy their crap at high prices.

    Edited 2008-05-05 00:08 UTC

  • 2008-05-05 9:02 am
    matthekc

    Microsoft’s ambition is still to become a bigger player on the net so they are going to buy something. That being said whatever they buy the open source community will likely shun and maybe even actively fight. I know I personally would have closed my Yahoo mail account had the deal went through.

  • 2008-05-05 11:08 am
    moleskine

    It’s worth asking whether Microsoft sees Google as the primary threat because Google is number 1 in its sector or because Microsoft thinks that online advertising is the most desirable place to be.

    No law of nature decrees that online advertising of the Google kind will be a goldmine forever. Other companies like Apple have zero presence in online advertising and yet are hugely successful, dominate their sectors and cannot shift their products fast enough. Microsoft has a vast cash pile and plenty of other ways to spend it.

    So I hope this obsession with Google isn’t a case of who has the biggest swinging dick. This would suggest that Microsoft is stuck in the monopoly mindset – if you can’t own and dominate a market, it isn’t worth being in.

    Microsoft already enjoys one monopoly and can’t expect another. They need to be a little more creative about where they go from here, imho. Otherwise, surprise surprise, the sharks might start circling Microsoft, with a view to breaking up a company that apparently can’t grow any further without some drastic surgery and a boardroom clear out.

  • 2008-05-05 1:01 pm
    cmost

    Personally, I’m happy to hear that Yahoo has survived for another day without being swallowed up by the ubiquitous Microsoft. As one who opposes Microsoft on many levels because I don’t agree with their business practices and I find their products and services to be sub-par, it’s good to know that non-Microsoft alternatives still exist. Microsoft can no longer innovate so its only recourse is to buy companies that do innovate. Sorry Charlie, not this time. Microsoft needs to start worrying about its problematic operating systems and buggy software before worrying about purchasing its rivals.

  • 2008-05-05 7:07 pm
    dmrio

    Goodbye Yahoo, I will miss you.

  • 2008-05-05 7:46 pm
    TommyD

    A couple of things of late have worried me about Yahoo:

    1. They cancelled their BillPay service. I had all of my accounts setup.

    2. They are not taking on new websites. I have been using their SmallBusiness webhosting service for years. Just this last week I received a notice that they would not be accepting any new Smallbusinesss hosting services. Since I am always making changes, addding new services, etc, this is a bummer. They are not cancelling the existing sites yet, but you know it is a matter of time. Times to move on, I guess.

    I worry for Yahoo.