Yahoo board formally rebuffs Microsoft's US$44.6 billion takeover bid
The Associated Press
Yahoo Inc. (NASDAQ:YHOO) spurned Microsoft Corp.'s (NASDAQ:MSFT) US$44.6 billion takeover bid as inadequate Monday, betting that it can elicit a higher offer from the world's largest software maker or find another way to deliver a comparable payoff to its shareholders.
The rebuff by the slumping Internet pioneer had been widely anticipated after word of Yahoo's intention was leaked during the weekend.
In its formal response, Yahoo said its board had concluded Microsoft's unsolicited offer "substantially undervalues" the Sunnyvale-based company.
Yahoo indicated it could be lured to the negotiating table if Microsoft ups the ante, without mentioning the price it has in mind.
"The board of directors is continually evaluating all of its strategic options in the context of the rapidly evolving industry environment and we remain committed to pursuing initiatives that maximize value for all stockholders," Yahoo said in a statement.
Investors appeared confident that Microsoft wants Yahoo badly enough to raise the stakes. Yahoo shares rose 34 cents to $29.54 in Monday's morning trading while Microsoft shares fell 46 cents to $28.10.
If Microsoft doesn't raise its offer, Yahoo chief executive Jerry Yang assured employees in a Monday e-mail that the company is poised to rebound on its own and become a "must buy" in the $45 billion online advertising market.
"We have accomplished a great deal in a very short time," wrote Yang, a company co-founder who promised things would get better after he became CEO eight months ago. "Yahoo is a faster-moving, better organized, more nimble company well on its way to transforming the experiences of its users, advertisers, publishers and developers."
Just two days before Microsoft made its bid, Yang had warned Yahoo faced "headwinds" that made it unlikely the company's performance would improve significantly until 2009.
Yahoo's stock price had dropped by more than 40 per cent in the three months leading to Microsoft's bid, valued at $31 per share when it was announced Feb. 1. The offer was 62 per cent above Yahoo's market value at the time.
Many analysts believe Redmond, Wash.-based Microsoft will eventually raise its bid to $35 to $40 per share, sweetening the pot by $5 billion to $12 billion in an effort to negotiate an amicable sale.
Microsoft was prepared to pay at least $40 per share for Yahoo a year ago, according to a person familiar with the talks between the two companies a year ago. Yahoo wasn't interested then because it was confident in its own strategy, said the person, who didn't want to be identified because Microsoft's 2007 offer was never publicly disclosed.
But a higher bid now could hurt Microsoft's own stock price, which has been slipping amid concerns that a Yahoo takeover could be more trouble than its worth. Microsoft's market value has plunged by more than $40 billion, or 14 per cent, since the bid was made public.
Microsoft representatives didn't immediately respond to requests for comment Monday morning.
RBC Capital Markets analyst Jordan Rohan predicted Yahoo's board will have little choice but to sell the company if Microsoft raises its bid to $35 or $36 per share. "Yahoo management has already exhausted the patience of its largest, longest-suffering shareholders," Rohan wrote in a Monday note.
If it doesn't want to pay more money, Microsoft could take its original bid directly to Yahoo's shareholders. Microsoft's management began preparing for that possibility last week by meeting with some of Yahoo's major shareholders to rally support for its offer.
In a more extreme tactic, Microsoft could try to override Yahoo's board by trying to oust the current directors later this year - a risky manoeuvre that would likely create hard feelings that would make it more difficult to cobble the two businesses together if a deal were consummated.
Yahoo also could fend off Microsoft by exercising an anti-takeover device, known as a "poison pill," that would issue more company shares to make a buyout too expensive to pull off.
Although its profits have been dwindling during the past two years, Yahoo still possesses one of the Internet's biggest audiences and most valuable franchises. Microsoft believes it can build on those assets to become a more formidable competitor to Google Inc., which now holds a commanding lead in the lucrative online search and advertising markets.
Yahoo has reportedly been exploring an advertising partnership with Google as one way to boost its profits and remain independent. The company also has been looking for other suitors that might be interested in countering Microsoft's bid, but so far no one has stepped forward.
By rejecting Microsoft's initial offer, Yahoo's board is running the risk that the company's stock will plunge below $20 per share again if its suitor decides to walk away.
That scenario would probably unleash a flood of shareholder lawsuits, intensifying the pressure on Yahoo's management team to deliver on a long-awaited turnaround that has been in the works for the past 18 months.
Monday, February 04, 2008
Microsoft says expects Yahoo to accept bid quickly
Reuters - Mon, Feb 04, 2008
Microsoft Corp said on Monday that its $44.6 billion unsolicited offer for Yahoo Inc was generous and it expects Yahoo's board and shareholders to agree to the buyout quickly.
"We trust the Yahoo board and the Yahoo shareholders will join with us quickly in deciding to move down an integrated path," Microsoft Chief Executive Steve Ballmer said in an annual strategy meeting with analysts.
Microsoft's comments follow a weekend of maneuvering by Yahoo, which, according to sources familiar with Yahoo's strategy, is considering a business alliance with Google Inc to rebuff Microsoft's proposal. It has also received preliminary contacts from media, technology, telecommunications and financial companies, another source close to Yahoo said.
At the same meeting, Microsoft Chief Financial Officer Chris Liddell also said the company may borrow money for the first time in its history to fund a portion of the 50-50 cash and stock offer for Yahoo.
"If you look at the cash component ... we could fund most of that through our cash holdings, but it's likely we're actually going to borrow for the first time," said Liddell. "It's going to be a mixture of the cash we have on hand plus debt."
Liddell said he expects Microsoft's revenue to grow at a double-digit percentage in the coming fiscal year starting in July despite a potential U.S. economic slowdown.
Microsoft also announced that its first major update to Windows Vista was released to manufacturing. Usually, large organizations wait for the first major update before deploying a new operating system.
Shares of Microsoft rose 5 cents to $30.50 in early Nasdaq trading, while Yahoo shares rose 44 cents to $28.82.
Reuters - Mon, Feb 04, 2008
Microsoft Corp said on Monday that its $44.6 billion unsolicited offer for Yahoo Inc was generous and it expects Yahoo's board and shareholders to agree to the buyout quickly.
"We trust the Yahoo board and the Yahoo shareholders will join with us quickly in deciding to move down an integrated path," Microsoft Chief Executive Steve Ballmer said in an annual strategy meeting with analysts.
Microsoft's comments follow a weekend of maneuvering by Yahoo, which, according to sources familiar with Yahoo's strategy, is considering a business alliance with Google Inc to rebuff Microsoft's proposal. It has also received preliminary contacts from media, technology, telecommunications and financial companies, another source close to Yahoo said.
At the same meeting, Microsoft Chief Financial Officer Chris Liddell also said the company may borrow money for the first time in its history to fund a portion of the 50-50 cash and stock offer for Yahoo.
"If you look at the cash component ... we could fund most of that through our cash holdings, but it's likely we're actually going to borrow for the first time," said Liddell. "It's going to be a mixture of the cash we have on hand plus debt."
Liddell said he expects Microsoft's revenue to grow at a double-digit percentage in the coming fiscal year starting in July despite a potential U.S. economic slowdown.
Microsoft also announced that its first major update to Windows Vista was released to manufacturing. Usually, large organizations wait for the first major update before deploying a new operating system.
Shares of Microsoft rose 5 cents to $30.50 in early Nasdaq trading, while Yahoo shares rose 44 cents to $28.82.
Sunday, February 03, 2008
Microsoft and Yahoo! -- A $45 billion bet
Feb 1st 2008
From Economist.com
IT IS a potential deal that has been talked about for years, but has suddenly become a real possibility. On Friday February 1st Microsoft, the world’s biggest software company, made a $44.6 billion offer for Yahoo!, an ailing internet giant. The proposed deal, which would transform the software and internet-services industries, values Yahoo! at $31 a share, a 62% premium over the closing price on Thursday.
In a letter to the board of Yahoo!, Microsoft’s chief executive, Steve Ballmer, referred to previous discussions between the two companies in 2006 and 2007 about a possible partnership or merger. At the time, Yahoo! was hopeful that Panama, a new system it had developed to place advertisements next to the results of internet searches, would improve its fortunes and help it to catch up with Google, the leader in both internet search and advertising. Panama failed to live up to expectations, however, prompting Yahoo!’s chief executive, Terry Semel, to resign in June 2007.
His place was taken by Jerry Yang, one of Yahoo!’s co-founders, who promised to put things right at the sprawling internet conglomerate. But Yahoo!’s latest results, released on January 30th, were disappointing, and its share price fell to a four-year low. Mr Yang said that the company faced “headwinds”, as Yahoo! announced plans to cut 1,000 jobs, some 7% of its workforce. Microsoft saw its chance. “While a commercial partnership may have made sense at one time, Microsoft believes that the only alternative now is the combination of Microsoft and Yahoo! that we are proposing,” wrote Mr Ballmer.
Google is not mentioned anywhere in Mr Ballmer’s letter, but its increasing clout in the online-advertising market, as a result of its leadership in search, is what has motivated the deal. “Today, the market is increasingly dominated by one player who is consolidating its dominance through acquisition,” he wrote. Combining Yahoo!, the number two in search and advertising, with Microsoft, the number three, would provide a stronger competitor in an industry where scale provides a huge advantage.
Google currently handles 66% of searches on the internet in America, compared with 21% for Yahoo and a mere 7% for Microsoft (through MSN and its new search engine, live.com). Strikingly, over the past year both Microsoft and Yahoo have seen their share of searches decline while Google's has gained.
The more people use your search engine, the more advertisers you can attract; and the more advertisers you can attract, the more likely you are to be able to serve up relevant advertisements that people will actually click on. As Mr Ballmer puts it: “While online advertising growth continues, there are significant benefits of scale in advertising platform economics, in capital costs for search index build-out, and in research and development, making this a time of industry consolidation and convergence.”
Microsoft is desperate to grab a bigger share of the online-advertising market because many of its software products are being challenged by free, advertising-supported services offered by Google. The company is also worried that Google’s dominance in search and advertising allows it to dictate terms to advertisers, and gives it an unfair advantage over its smaller rivals. This is a bit rich coming from Microsoft, a convicted monopolist in operating-system software, which has also been known to squeeze out smaller competitors, but its anger that it has had to endure years of scrutiny by regulators, while Google has been left alone, is genuine.
As well as creating a stronger rival to Google, the deal would also have other merits, Microsoft claims. The two companies could combine their research-and-development efforts into search, advertising and other areas; they could save money by consolidating the huge warehouses full of computers, known as “server farms”, that both firms operate; and they would be better placed to compete in new areas such as online video, social networking and online commerce. But it is clear that the real prize is greater clout in search and advertising.
Whatever Yahoo!’s management makes of the offer, the firm’s shareholders will be delighted at the news. Microsoft shareholders are likely to be less enthusiastic: integrating the two companies would be a mammoth task, and Microsoft has never made an acquisition on anything approaching this scale before. Some sceptics say that this is too much to pay for a troubled company, even if it is, by some measures, the world’s biggest internet firm. Microsoft says it is confident that regulators will approve the deal, which could be completed by the end of the year.
Feb 1st 2008
From Economist.com
IT IS a potential deal that has been talked about for years, but has suddenly become a real possibility. On Friday February 1st Microsoft, the world’s biggest software company, made a $44.6 billion offer for Yahoo!, an ailing internet giant. The proposed deal, which would transform the software and internet-services industries, values Yahoo! at $31 a share, a 62% premium over the closing price on Thursday.
In a letter to the board of Yahoo!, Microsoft’s chief executive, Steve Ballmer, referred to previous discussions between the two companies in 2006 and 2007 about a possible partnership or merger. At the time, Yahoo! was hopeful that Panama, a new system it had developed to place advertisements next to the results of internet searches, would improve its fortunes and help it to catch up with Google, the leader in both internet search and advertising. Panama failed to live up to expectations, however, prompting Yahoo!’s chief executive, Terry Semel, to resign in June 2007.
His place was taken by Jerry Yang, one of Yahoo!’s co-founders, who promised to put things right at the sprawling internet conglomerate. But Yahoo!’s latest results, released on January 30th, were disappointing, and its share price fell to a four-year low. Mr Yang said that the company faced “headwinds”, as Yahoo! announced plans to cut 1,000 jobs, some 7% of its workforce. Microsoft saw its chance. “While a commercial partnership may have made sense at one time, Microsoft believes that the only alternative now is the combination of Microsoft and Yahoo! that we are proposing,” wrote Mr Ballmer.
Google is not mentioned anywhere in Mr Ballmer’s letter, but its increasing clout in the online-advertising market, as a result of its leadership in search, is what has motivated the deal. “Today, the market is increasingly dominated by one player who is consolidating its dominance through acquisition,” he wrote. Combining Yahoo!, the number two in search and advertising, with Microsoft, the number three, would provide a stronger competitor in an industry where scale provides a huge advantage.
Google currently handles 66% of searches on the internet in America, compared with 21% for Yahoo and a mere 7% for Microsoft (through MSN and its new search engine, live.com). Strikingly, over the past year both Microsoft and Yahoo have seen their share of searches decline while Google's has gained.
The more people use your search engine, the more advertisers you can attract; and the more advertisers you can attract, the more likely you are to be able to serve up relevant advertisements that people will actually click on. As Mr Ballmer puts it: “While online advertising growth continues, there are significant benefits of scale in advertising platform economics, in capital costs for search index build-out, and in research and development, making this a time of industry consolidation and convergence.”
Microsoft is desperate to grab a bigger share of the online-advertising market because many of its software products are being challenged by free, advertising-supported services offered by Google. The company is also worried that Google’s dominance in search and advertising allows it to dictate terms to advertisers, and gives it an unfair advantage over its smaller rivals. This is a bit rich coming from Microsoft, a convicted monopolist in operating-system software, which has also been known to squeeze out smaller competitors, but its anger that it has had to endure years of scrutiny by regulators, while Google has been left alone, is genuine.
As well as creating a stronger rival to Google, the deal would also have other merits, Microsoft claims. The two companies could combine their research-and-development efforts into search, advertising and other areas; they could save money by consolidating the huge warehouses full of computers, known as “server farms”, that both firms operate; and they would be better placed to compete in new areas such as online video, social networking and online commerce. But it is clear that the real prize is greater clout in search and advertising.
Whatever Yahoo!’s management makes of the offer, the firm’s shareholders will be delighted at the news. Microsoft shareholders are likely to be less enthusiastic: integrating the two companies would be a mammoth task, and Microsoft has never made an acquisition on anything approaching this scale before. Some sceptics say that this is too much to pay for a troubled company, even if it is, by some measures, the world’s biggest internet firm. Microsoft says it is confident that regulators will approve the deal, which could be completed by the end of the year.
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