Microsoftâs Yahoo Bid: Whatâs Next
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Yahooâs board may decide that selling to Microsoft is the best course, given Yahooâs recent troubles and its sagging share price. But what if it doesnât?
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A combined Yahoo and Microsoft would still be the underdog in the increasingly important business of Web search if Microsoft's unsolicited $44.6 billion bid to buy Yahoo is approved by regulators and Yahoo shareholders.
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Yahoo has not reached a decision about&#160;Microsoft&#39;s acquisition offer&#160;and is considering &quot;a wide range of potential strategic alternatives,&quot; Yahoo CEO Jerry Yang said in an e-mail to employees on Wednesday.In the e-mail, which was addressed to &quot;yahoos&quot; and filed with the U.S. Securities and Exchange Commission, Yang said the Yahoo board is still reviewing the deal and will &quot;take the time it needs to do it right.&quot;&quot;Our board is thoughtfully evaluating a wide range of potential strategic alternatives in what is a complex and evolving landscape,&quot; he wrote in the e-mail, typed in all lowercase letters.Microsoft made its unsolicited bid for Yahoo last Friday, offering to pay $44.6 billion for the company, or 62 percent over Yahoo&#39;s closing share price Thursday. The deal would greatly expand Microsoft&#39;s search and advertising business and could help it to compete better with Google online.Yahoo is understood to be lukewarm on the offer. The company hopes a rival suitor will emerge with a counteroffer or that it can forge a deal with Google that will allow it to remain independent, according to Wednesday&#39;s Wall Street Journal newspaper, which cited unnamed sources.However, analysts have said it is unlikely another company could match Microsoft&#39;s sizeable offer, and a business deal between Yahoo and Google could raise antitrust concerns because of Google&#39;s already dominant market position.In the e-mail, Yang thanked the Yahoo staff for staying focused on their work amid the turmoil. The company has hired &quot;top advisors&quot; to assist it through the process and is focused on maximizing value for its shareholders, he said.
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Microsoft plans to intensify its pursuit of Yahoo this week when it authorizes a proxy fight to oust Yahoo&#39;s board, meaning the 19-day old acquisition attempt will soon turn a darker shade of ugly, according to The New York Times.The proxy fight will cost Microsoft between $20 million and $30 million, much less than having to significantly up its offer for Yahoo, The Times reported Tuesday morning, quoting anonymous sources.The aggressive move would be consistent with Microsoft&#39;s statements hinting that it&#39;s willing to acquire Yahoo via hostile means if necessary.&#160;Yahoo&#39;s board rejected unanimously Microsoft&#39;s offer, calling it too low.Yahoo declined to comment about The Times&#39; article. Microsoft didn&#39;t immediately reply to requests for comment.On Feb. 1, Microsoft offered to pay $31 per share for half of Yahoo&#39;s outstanding shares in cash -- about $22.3 billion -- and 0.9509 of a Microsoft share for the other half. Microsoft&#39;s half-cash/half-stock offer to Yahoo was valued at about $44.6 billion at the time it was made; Yahoo&#39;s share price was $19.18 at the time.However, the bid&#39;s value has dropped to about $41 billion as the price of Microsoft&#39;s stock has fallen from $32.60 at the time the offer was made. It was trading at $28.77 on Tuesday morning. At the same time, Yahoo&#39;s stock has surged, erasing the bid&#39;s original premium. It was trading at $29.32 on Tuesday morning.In the proxy fight, Microsoft would hire a proxy solicitor to urge Yahoo investors to kick out board directors, The Times reported, adding that all Yahoo directors are up for nomination this year.After investing heavily in recent years in its Internet business and failing to achieve its desired goals, Microsoft is now convinced that it must acquire Yahoo in order to compete against common rival Google, especially in search advertising, the largest online advertising market pie, and one that Google dominates.As of the end of 2007&#39;s third quarter, Google had almost 25 percent of the U.S. Internet advertising market, up from almost 21 percent in 2006&#39;s third quarter, according to IDC. Meanwhile, Yahoo&#39;s share during this period dropped to 11.3 percent from 12.3 percent, while Microsoft&#39;s declined to 5.2 percent from 5.8 percent, according to IDC.In search usage, Google held a commanding 62.4 percent of queries worldwide, followed by Yahoo in a very distant second place with 12.8 percent, according to comScore. Microsoft ranked fourth with 2.9 percent, after Baidu (5.2 percent).Unquestionably, Yahoo would be a major win for Microsoft in the display ad market. In November, Yahoo ranked first in the U.S. in display ad impressions with a 19 percent share, while Microsoft came in third with 6.7 percent, after News Corp.&#39;s Fox Interactive (16.3 percent), according to comScore. Google took seventh place with 1 percent.However, skeptics question whether acquiring Yahoo will yield the expected benefits, considering the complexity of integrating the two businesses, cultures and technology platforms and the fact that Yahoo has had severe internal problems that have stumped its most seasoned executives. In addition, some aren&#39;t sure that a unified Microsoft/Yahoo will have a better chance to compete against Google.Yahoo co-founder and CEO Jerry Yang, who is also on the board of directors, has been urgently looking for and considering alternatives to a Microsoft acquisition soon after Ballmer and company made their bid.Reports -- all attributed to anonymous sources in various media outlets -- have emerged in the past two weeks that Yang has held conversations with Google, AOL and News Corp., exploring various deals that would allow him to reject Microsoft&#39;s offer.The key is that the shareholder value created by a competing deal would have to at least match the value of Microsoft&#39;s deal. Otherwise, Yahoo would make itself liable to shareholder lawsuits that alleged the board had failed to perform its fiduciary duty.So far, as experts have analyzed the potential value to Yahoo of outsourcing its search advertising to Google, merging with AOL or selling a 20 percent stake to News Corp. in exchange for MySpace, the consensus has been that none of those scenarios comes close to matching Microsoft&#39;s offer.
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The Wall Street Journal reports that no serious bids have emerged to rival Microsoft's $44.6 billion offer for Yahoo. That doesn't mean the company isn't still trying to piece something together.
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It was a matter of minutes before news of Microsoftâs bid jumped from front pages to the vibrant world of technology blogs. Hereâs some of the more interesting thoughts so far.
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Microsoft is looking to launch a proxy fight as part of its effort to acquire Yahoo, according to the The New York Times. The battle could cost Microsoft an additional $20 million to $30 million.
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Yahoo called Microsoftâs $44.6 billion takeover offer too low, and said it would continue to evaluate all its options.
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Microsoft may end up having to raise the amount it is willing to pay for Yahoo if the software company&#39;s stock continues to drop while Yahoo&#39;s continues to rise.
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Microsoft bids $44.6 billion for Web portal Yahoo!. News, commentary and analysis.
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Whatever the outcome of Microsoftâs bid for Yahoo, the move and Googleâs countermoves mark an escalation in the confrontation between the two companies.
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Microsoft said&#160;its $44.6 billion offer to purchase Yahoo&#160;is &quot;fair&quot; and hinted that it may pursue a hostile takeover of the Internet company, according to a statement Microsoft made Monday in response to&#160;Yahoo&#39;s formal rejection of its buyout offer.In a statement, Microsoft said it&#39;s &quot;unfortunate&quot; that Yahoo &quot;has not embraced&quot; its proposal to combine the two companies, and the rejection of the offer &quot;does not change our belief in the strategic and financial merits of our proposal.&quot;The company also hinted that it may take the offer directly to Yahoo&#39;s shareholders, a move that could result in a hostile takeover.&quot;As we have said previously, Microsoft reserves the right to pursue all necessary steps to ensure that Yahoo&#39;s shareholders are provided with the opportunity to realize the value inherent in our proposal,&quot; Microsoft said in its statement.Earlier Monday, Yahoo formally rejected Microsoft&#39;s bid to acquire the company in a half-stock/half-cash purchase, saying it undervalued Yahoo.On Feb. 1, Microsoft offered to pay $31 per share for half of Yahoo&#39;s outstanding shares in cash -- about $22.3 billion -- and 0.9509 of a Microsoft share for the other half. Microsoft&#39;s half-cash/half-stock offer to Yahoo was valued at about $44.6 billion at the time it was made; Yahoo&#39;s share price was $19.18 at the time.However, since then Microsoft&#39;s stock has gone down while Yahoo&#39;s has risen, making the deal, under its current terms, worth less than when it was originally offered. This led to speculation that Yahoo might look for other suitors; the company is reportedly looking for about $40 per share. Yahoo&#39;s share price closed at $29.87 Monday; Microsoft&#39;s closed at $28.21.Some have speculated that Microsoft would raise its offer to the company to about $35 per share -- about midway between its original offer and Yahoo&#39;s target price -- but in its statement on Monday, the company seemed adamant about keeping the offer as it stands.&quot;We are offering shareholders superior value and the opportunity to participate in the upside of the combined company,&quot; Microsoft said. &quot;Based on conversations with stakeholders of both companies, we are confident that moving forward promptly to consummate a transaction is in the best interests of all parties.&quot;Microsoft&#39;s offer to purchase Yahoo is an attempt to join forces and improve both companies&#39; positions against Google in online advertising and services. However, many questioned both the logistical complexity and cultural differences involved in combining the companies, and there are fears that it will thwart rather than help their efforts to compete with Google.Yahoo is reportedly in talks with both AOL and Google to try to avoid being acquired by Microsoft. Analysts said Monday that Yahoo&#39;s initial rejection of the offer is more of an attempt to elicit a higher bid -- either from Microsoft or another company. If none comes, the company might decide in the future to accept Microsoft&#39;s offer as it stands, they said.
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Microsoft Corp. has offered to buy struggling internet search provider Yahoo for $44.6 billion, a merger that would combine two of the technology world's most well-known names into a potentially potent competitor for Google in the lucrative Web search and advertising market.
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Microsoft Corp  has made an  unsolicited offer to buy Yahoo Inc  for $44.6 billion  in cash and stock, seeking to join forces against Google Inc   in what would be the biggest Internet deal since the  Time Warner-AOL merger.
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The key to Microsoft's proposed $44.6 billion acquisition of Yahoo is both companies' desire to build an advertising platform that can compete with Google's AdWords.
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In a letter to Yahoo&#39;s board, Microsoft CEO Steve Ballmer&#160;offered to acquire the company&#160;for a per-share price of $31 in cash or 0.9509 of a share of Microsoft common stock -- a 62 percent premium above the Jan. 31, closing price of Yahoo -- and cited the broad range of ways in which the companies might work together to create a more effective competitor in the online marketplace. Below is the text of the letter that Microsoft sent to Yahoo&#39;s Board of Directors:
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Microsoft has offered to buy Yahoo for around $44.6 billion in cash and shares, to better compete with Google in the market for online services.The market for online advertising is increasingly dominated by one player, Microsoft said, and merging with Yahoo will allow it to offer a competitive alternative.Microsoft expects the market for online advertising to almost double in size over the next three years, from $40 billion in 2007 to $80 billion by 2010. A merger will allow it to realize economies of scale and reduce capital costs as it addresses this market, it said.&quot;The combination of these two great teams would enable us to jointly deliver a broad range of new experiences to our customers that neither of us would have achieved on our own,&quot; said Ray Ozzie, chief software architect at Microsoft, in a statement.Microsoft expects to cut costs by $1 billion a year by realizing synergies with Yahoo in four areas: obtaining economies of scale as its audience increases; combining its research and development efforts with Yahoo&#39;s to innovate faster; eliminating operational redundancy to cut costs, and pooling expertise to innovate in video and mobile.The companies will work together to develop the merger plan, Microsoft said.It intends to pay key Yahoo engineers and other staff to stay following the merger.The offer represents a 62 percent premium over Yahoo&#39;s closing price on Thursday. Microsoft expects to receive all necessary approvals in the second half of this year.