Microsoft bids $44.6 billion for Yahoo

http://www.nytimes.com/2008/02/11/technology/11cnd-yahoo.html?ref=technology

February 11, 2008
Yahoo Officially Rejects Offer
By ANDREW ROSS SORKIN

Yahoo officially rejected Microsoft’s $44.6 billion takeover offer on Monday, calling the bid too low.

“After careful evaluation, the board believes that Microsoft’s proposal substantially undervalues Yahoo including our global brand, large worldwide audience, significant recent investments in advertising platforms and future growth prospects, free cash flow and earnings potential, as well as our substantial unconsolidated investments,” the company said in a statement.

The company said it would continue to evaluate all its options.

The next move is now up to Microsoft and a largely unknown executive on the company’s sprawling campus, Christopher P. Liddell.

Mr. Liddell, a former banker from New Zealand, is the behind-the-scenes architect of Microsoft’s hostile takeover, the company’s first unsolicited bid and perhaps the most audacious attempt by a technology company to wrestle control of a competitor.

With Yahoo’s board rejecting Microsoft’s advances, it will fall to Mr. Liddell, an outsider to the software industry who joined Microsoft as its chief financial officer just two years ago, to plot the company’s next steps in this bitter battle — and in the process, reshape Microsoft’s not-invented-here culture toward making aggressive acquisitions.

“You have to be disciplined and ruthless,” Mr. Liddell said by telephone last week, before Yahoo’s board decided to rebuff the offer. “We should see acquisitions as a way of growth. We should not be embarrassed at all.”

Microsoft has made acquisitions over the years, but mainly smaller ones to jumpstart a fledgling business or pick up a needed technology. Its media player, voice recognition, health search and business software, among others, are technologies Microsoft bought along with the companies that created them.

However, when it has come to making big deals, it has balked until recently. In late 2003, Microsoft talked to the big German business software maker SAP about buying it. The deal, had it been pursued, would have cost Microsoft more than $50 billion.

The talks, made public in a court case in 2004, were abandoned, Microsoft said, because of the “complexity of the potential transaction,” especially the management headaches of trying to put the two big software companies together.

Mr. Liddell, who calls himself Microsoft’s “gatekeeper of funding,” spent the weekend devising ways to raise the stakes in the fight for Yahoo now that the company’s original proposal has been rejected, holding a series of marathon conference calls with his cadre of Wall Street advisers.

More an accountant than a technologist, Mr. Liddell, who joined Microsoft after serving as chief financial officer at International Paper, the giant forest products company, clearly has no compunction about ruffling any digital feathers. Among his alternatives is a series of bare-knuckle Wall Street tactics: First, Microsoft is planning to crisscross the nation to meet with Yahoo’s largest shareholders in an election-style campaign, hoping they can put pressure on Yahoo’s board, people briefed on the company’s plans said.

Microsoft may have an easier time than it could have had two weeks ago: since then, millions of Yahoo’s shares have traded hands to short-term-oriented hedge funds that typically favor a quick sale, as opposed to value investors who hold shares for the long term.

Microsoft could also decide to make an offer directly to shareholders, called a tender offer, which would put more pressure on Yahoo’s board to negotiate. At the same time, Microsoft could also set a deadline for its bid, known as an “exploding offer.”

And if Microsoft decides to make this a nasty battle, it could start a proxy contest to oust Yahoo’s board at its next election; it would have until March 13 to nominate a new slate of directors.

Microsoft’s advisers in the takeover attempt are Morgan Stanley and the Blackstone Group. Its lawyers are Simpson Thacher & Bartlett and Cadwalader Wickersham & Taft.

They are facing Yahoo’s team of bankers at Goldman Sachs, Lehman Brothers and Moelis & Company, and its lawyers at Skadden, Arps, Slate, Meagher & Flom.

Microsoft also hired outside public relations advisers, Joele Frank, Wilkinson Brimmer Katcher and Waggener Edstrom Worldwide. Yahoo has Abernathy-McGregor and Robinson, Lehrer, Montgomery.

Microsoft may simply raise its offer to clinch a deal. Analysts have suggested the company could afford to pay as much as $35 a share for Yahoo, up from its current offer of $31.

But Mr. Liddell, speaking generally about negotiations, seemed to suggest he was willing to play hardball. “You have to be willing to walk away,” said Mr. Liddell, who plays rugby regularly and has completed several triathlons.

For Mr. Liddell, who sends e-mail messages to colleagues at all hours and is a PowerPoint whiz, the prospect of joining Microsoft as an outsider and trying to transform it into a financially oriented acquisition machine was daunting. “I knew there had been a history of people coming in here and it not working,” he said.

Mr. Liddell was one of several high-profile outside hires at Microsoft in recent years including Ray Ozzie, the creator of Lotus Notes, as the company’s chief software architect; and B. Kevin Turner, a former Wal-Mart executive, as chief operating officer.

Mr. Liddell, who has a master’s degree in philosophy from Oxford, found that with Bill Gates and the president, Steven A. Ballmer, “If you do a good job, you fit in. They don’t suffer people very well who don’t come prepared.”

He has a background as an investment banker at Credit Suisse First Boston in Auckland. Since he joined the company, Microsoft has made 50 acquisitions.

He has pushed the company to use its cash — it has spent $54 billion on stock buybacks and dividends since his arrival. And it has even taken on, dare it be said aloud at Microsoft, debt for the first time in the company’s history. If the company’s bid for Yahoo is successful, Microsoft will be doing both.



I dunno. This could turn into a great big poison pill for Microsoft if they're not careful. This Liddell character is a perfect example of what happens when bean counters are allowed to start running the show. From a purely business perspective, I'm having trouble understanding why M$ would want to pursue Yahoo! so aggressively in a fashion that would surely break everything that makes them a desirable commodity for purchase in the first place. Particularly since it wouldn't get them anywhere near Google in terms of search rankings and would bring so many certain issues where merging of cultures, processes, business objectives, etc. are concerned. Anyone still left at Yahoo! after such a hostile takeover would surely be disgruntled and either looking for a way out or a way to sabotage everything. It's almost as if Microsoft and Liddell have this sort of "We want it just because we think we should have it" mentality about this acquisition and now that it's out in the public eye they feel compelled to follow through with it just to prove they could do it. Stupid.

jag
 
Coming from an investment banking background I do understand the strategy but this is likely to be a long faught process and we will not see the results until at least the end of the year.

The strategy is of one established company attempting to gain business share into what they may believe to be the future and as such are threatenned due to their lack of substantial presence.
 
Coming from an investment banking background I do understand the strategy but this is likely to be a long faught process and we will not see the results until at least the end of the year.

The strategy is of one established company attempting to gain business share into what they may believe to be the future and as such are threatenned due to their lack of substantial presence.

Yes, I get the strategy. But if you look at the numbers, buying Yahoo won't get M$ anywhere NEAR Google in terms of market share and it will be several years before they deal with the merger fallout and make themselves fully operational in this space, at which point Google will be even further ahead of them. I fully understand the concept of "buying marketshare by buying a business", but this just isn't going to get it done.

It's interesting to me. When people try to do hostile takeovers ("I'll MAKE you love me and be my wife!") we put them in jail and call them nuts. When corporations do it, we support them and help them do it. Heh! :D

jag
 
They are wanting to pay $30 per share...Yahoo was worth $20 at the time..
That is one hell of a premium.

I think its a really dumb idea.

Microsoft needs to diversify into some slightly less technical company.
 
Which I use
Yahoo Widgets > Google Gadgets
Yahoo Mail < Gmail
Yahoo Messenger = Google Talk (I don't use either)
Yahoo and Norton Anti Virus > oh wait... google doesn't have one!
Yahoo Search < Google Search
Rogers Yahoo Internet > Google doesn't have one!
Yahoo doesn't have video hosting...= Youtube. I don't like YT anymore. Surprise! Once Google bought it, they really started enforcing on copyright laws. Now all we really get is stupid webcam people. I prefer Veoh TV and Stage 6

Points
Yahoo!: 3
Google: 2

Popularity:
Yahoo Widgets (AKA the Konfabulator) > Google Gadgets
Yahoo Mail > Gmail
Yahoo Messenger > Google Talk (I don't use either)
Yahoo and Norton Anti Virus > oh wait... google doesn't have one!
Yahoo Search < Google Search
Rogers Yahoo Internet > Google doesn't have one!
Yahoo doesn't have video hosting...< Youtube

Points
Yahoo: 5
Google: 2

Want to know what I think? It's another move in the Mac Vs Pc battle. Mac is buying rights to Google/Youtube and now Microsoft is going for Yahoo! Now going by what I use...

Antivirus: Norton/Yahoo!
Desktop Items: Yahoo Widgets but ONLY on my Laptop
Mail: I use Windows Live Messenger cause it synchs my Gmail (that's with GOOGLE) and Hotmail (Microsoft)
Messenger: Windows Live Messenger
Search: Google
Internet: Rogers Yahoo!
Videos: Veoh TV

There are some extremists of the Mac/PC battle *cough*jag*cough* that mainly stick to one side alone but at the moment, I'm going with the "/" in "Mac/PC" taking some aspects from the different OS's.

Well that's just my two cents.
 
Apple isn't buying up Google, AM. They have some cooperative deals going with Google, but they aren't buying them up.

jag
 
Interesting development:

http://business.timesonline.co.uk/tol/business/industry_sectors/technology/article3346356.ece

February 11, 2008
Yahoo! set to revive merger talks with AOL after rejecting hostile takeover
Yahoo! headquarters in Sunnyvale, California
Siobhan Kennedy and Suzy Jagger in New York

Yahoo! is seeking to restart merger talks with AOL as a means of defending itself against the $45 billion (£23 billion) hostile bid approach from Microsoft, The Times has learnt.

It is understood that Yahoo! and its team of advisers from Goldman Sachs and Lehman Brothers, the US investment banks, have spent the past week evaluating possible tie-ups with media and technology firms that would save it from being swallowed by Microsoft.

It is also understood that one option being explored is to restart merger talks with AOL, the online business owned by Time Warner. Tie-ups with groups such as Google or Disney are also being considered. Although Yahoo! and AOL previously failed to join forces because of differences over price, it is hoped that the urgency created by an unwelcome approach from Microsoft and an impending economic downturn will spur the two into new talks. Google, which offered support to Yahoo! when the Microsoft approach was made public, also has a 5 per cent stake in AOL.

Jerry Yang, co-founder of Yahoo!, will today tell Wall Street that his board has rejected the software giant&#8217;s cash-and-shares proposal because it significantly undervalues the company. It is believed that the Yahoo! board will not even consider starting talks with Microsoft unless the suitor group offers at least $12 billion more, representing a share price value of more than $40.
Related Links

* Google attacks Microsoft's Yahoo bid

* Microsoft set to oust Yahoo! board

* Yahoo! shares soar after $44.6bn Microsoft bid

Currently, Microsoft has proposed paying $31 in cash and shares, valuing Yahoo! at just under $45 billion. Microsoft had proposed to pay Yahoo! shareholders up to half in cash and the rest with Microsoft shares.

A source close to Yahoo!&#8217;s thinking told The Times: &#8220;All they [Microsoft] are trying to do is pick off the company on the cheap. They&#8217;re trying to steal it. And the board is not going to let that happen. They have gone for a valuation that reflects the five-year low of the stock.&#8221;

The source added: &#8220;It would have to be in the 40s to start talking, and we would have to get over regulatory issues. It would have to be an offer that would give Jerry Yang something to stand on a podium and smile about.&#8221;

Yahoo! came to its decision at a meeting of its board on Friday night.The rejection may raise eyebrows, since Microsoft&#8217;s bid proposal valued Yahoo! at a 62 per cent premium to its closing price the day before the offer was made public on February 1.

Such a rejection would suggest that Mr Yang is prepared to argue to shareholders that he is capable of boosting Yahoo!&#8217;s share price by at least 62 per cent if the company stays independent. It is understood that today&#8217;s announcement will not include any firm talks with other media firms.

Yahoo! has suffered eight consecutive quarters of profit decline. Critically, it has also lost part of its share of the $40 billion online advertising market to Google, its dominant rival.

Microsoft is thought to be trying to engage Yahoo! shareholders in some form of discussion. It is also understood to be considering a proxy fight in the next month, in which it plans to oust most of the Yahoo! board and replace key executives with its own choice of management team.

That process &#8212; open to Microsoft as a shareholder in Yahoo! &#8212; is understood to be the last resort for the computer group if Mr Yang refuses to start serious merger talks. Any shareholder in Yahoo! can nominate executives by next month. Nominations would then be voted on by all shareholders.

Microsoft is desperate to take over Yahoo! because of the threat that Google&#8217;s dominance of the online search advertising market poses to the computer company&#8217;s future. Last year, after long discussions about a merger between the two, Yahoo! declared that it was not for sale. However, it did agree to draw up proposals about how the two could co-operate to fight Google more effectively.

Yahoo! is considered by Microsoft to have reneged on its pledge and Microsoft has become increasingly frustrated in the past 12 months as Google has grown stronger and Yahoo! has lost market share and been forced to cut 1,000 jobs.


jag
 
Yup. Microsoft is hinting they could turn hostile on this thing. Jim Cramer said it himself....Ballmer doesn't like to lose:

http://money.cnn.com/news/newsfeeds/articles/djf500/200802111734DOWJONESDJONLINE000614_FORTUNE5.htm

UPDATE:Microsoft Defends Yahoo Proposal,Hints May Turn Hostile
Dow Jones
February 11, 2008: 05:34 PM EST

DOW JONES NEWSWIRES

Microsoft Corp. (MSFT) called Yahoo Inc.'s (YHOO) rejection of its unsolicited acquisition proposal "unfortunate" and warned it could turn hostile and take an offer directly to shareholders if the Internet company's management doesn't back down.

Microsoft said the proposal is "in the best interests of all parties." The software giant is proposing to pay the equivalent of $28.91 in cash and stock for every Yahoo share - $41.6 billion in total - down from the original value of $31 a share due to a decline in the price of Microsoft's stock.

Earlier Monday, Yahoo rejected Microsoft's approach, saying it substantially undervalued Yahoo. The Internet company, however, left the door open for a higher bid, at least theoretically, saying its board was "continually evaluating all of its strategic options" and remained "committed to pursuing initiatives that maximize value for all stockholders."

Yahoo shares closed Monday up 2.3% at $29.87, above the value of Microsoft's offer. Microsoft shares closed down 1.2% at $28.21.

Microsoft said that Yahoo's resistance to its offer "does not change our belief in the strategic and financial merits of our proposal."

"As we have said previously, Microsoft reserves the right to pursue all necessary steps to ensure that Yahoo's shareholders are provided with the opportunity to realize the value inherent in our proposal," the company said in a release

Yahoo has taken "poison pill" provisions to prevent an unwanted takeover. Microsoft would likely have to oust the board in order to overturn them.

Yahoo's directors have been considering various other scenarios to avoid selling to Microsoft, including outsourcing its search advertising to Google Inc. (GOOG) to boost revenue and provide greater latitude to try to remain independent, people familiar with the matter have told The Wall Street Journal.

Analysts have expected Microsoft to increase its offer of $31 a share, which represented a 62% premium to Yahoo's share price when it was announced. But Yahoo is pressing for at least $40 a share, according to a person familiar with the matter. Such a premium would increase the value of Microsoft's original cash-and-stock bid by more than $12 billion.

The proposed deal, which would be Microsoft's largest-ever purchase, came after Yahoo's share price had dropped steadily since October and in the same week the company announced a disappointing 2008 outlook.

Shares of Yahoo traded at $30.01 in after-hours activity Monday.



Yahoo is a dying company. This is sheer stupidity on M$'s part and if I were a major stakeholder I'd be fuming at this decision.

jag
 
Apple isn't buying up Google, AM. They have some cooperative deals going with Google, but they aren't buying them up.

jag
Actually, Mac was forced to buy rights to put Youtube on the iPod touch and the iPhone and Google owns Youtube.
 
Actually, Mac was forced to buy rights to put Youtube on the iPod touch and the iPhone and Google owns Youtube.

That's a licensing deal and Apple's not the only ones that have that with Google. Far different from flat out buying the whole damn company. ;)

jag
 
You do understand the difference between buying a license to use a company's intellectual property and actually buying all or a portion of a company, right?

jag
 
i really hope M$ doesn't get Yahoo. the more i hear M$ doing crap like this the more i dislike them.

their next target....Wal-Mart.
 
Personally,

I think Microsoft needs to buy an independent hardware company.
Something to allow them to provide a great hardware income...
Not Cisco, but something equivalent...
Linsys, NetGear are two examples...

If not something like that, they need to move into an industry that is less technical to diversify their portfolio
 
Just realized that Cisco owns Linksys now...forgot...scratch that one
 
Looking more and more like Microsoft may wind up pulling this off, but mostly due to the fact that the top ~20% of Yahoo's shareholders also own major stock in Microsoft and they don't want to see the deal get too expensive as a result.

http://www.thestreet.com/s/fund-ove..._googlen?cm_ven=GOOGLEN&cm_cat=FREE&cm_ite=NA

Personally, I think this will wind up taking both companies down a notch or three in stock value, as is alluded to in this article. I also don't think they can successfully integrate the companies to a point that will bring worthwhile ROI to the deal. There's already a small exodus of key people bailing out of Yahoo and more will surely follow, knowing how much their corporate culture hates Microsoft. That will make them practically worthless to Microsoft if they succeed in buying them out. I know there are plenty of Microsoft shareholders who are wanting this deal to just die and go away. Microsoft is already down 13% since they announced their intent to take over Yahoo. Could get much, much worse for them before it's through, too. This could be the deal that takes Microsoft down too many notches for them to ever really recover. Don't forget, Steve Ballmer doesn't like to lose. He won't give this up, whether it makes good business sense or not.

jag
 
Everyone wants some of that Yahoo! action.
 
^I remember back in 2000 when the bubble burst, people were saying Yahoo was going to become extinct.
 

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