Friday, February 1, 2008
Microsoft Makes Bid for Yahoo
Wall Street Journal - Microsoft Corp. Friday offered to buy Yahoo Inc. for $44.6 billion, a move designed to pick up a struggling rival as both companies are fighting in the online-advertising world with Google Inc.
The offer, $31 a share in cash and stock, is a 62% premium to Thursday's closing price. Yahoo shares jumped to $29.45 in premarket trading. Microsoft closed at $32.60 and dipped to $32 premarket.
Read the full article (subscription).
Now this is not something out of the blue. It's been in the works since early 2007, when Microsoft started feeling the heat from Google's rapidly increasing search market share, and Yahoo's share of the search market started dropping. The two companies have had held informal discussions in the past, and Yahoo could fetch $50 billion, the New York Post reported, citing banking sources..A combined Microsoft-Yahoo "would still trail Google in market share and search advertising . . . but they would be a much bigger threat to Google," Stanford Group analyst Clayton Moran told CNBC...
Whatever happens to the combined behemoth that would emerge after the merger, one thing is absolutely going to happen in the next couple of days - Yahoo! shares are going to shoot up.
A Microsoft-Yahoo merger makes sense from more than one angle. First, neither has the ability to take on Google on it's own. Put together, they might have a chance if Google makes a mistake. Secondly, Yahoo is going down, as we discussed here, and every quarter from now, the results are going to be even worse. If they want to sell and let Microsoft worry about Google, no time like the present.
Update 1: CNNMoney.com has the full text of Microsoft CEO Steven A. Ballmer's letter to Yahoo! Inc.'s Board of Directors. Excerpt below...
Board of Directors
Yahoo! Inc.
701 First Avenue
Sunnyvale, CA 94089
Attention: Roy Bostock, Chairman
Attention: Jerry Yang, Chief Executive Officer
Dear Members of the Board:
I am writing on behalf of the Board of Directors of Microsoft to make a proposal for a business combination of Microsoft and Yahoo!....In February 2007, I received a letter from your Chairman indicating the view of the Yahoo! Board that "now is not the right time from the perspective of our shareholders to enter into discussions regarding an acquisition transaction." According to that letter, the principal reason for this view was the Yahoo! Board's confidence in the "potential upside" if management successfully executed on a reformulated strategy based on certain operational initiatives, such as Project Panama, and a significant organizational realignment. A year has gone by, and the competitive situation has not improved.
In early 2007, they held talks about it. Yahoo thought they could still bring the ship around, but it didn't work. And now they are left with no choice. This is an offer Yahoo can't refuse. If you are Yahoo’s investment bankers, you would come up with a list of alternatives. You could look at combinations with the MySpace unit of News Corporation or the AOL unit of Time Warner....That sort of deal requires that Yahoo make the case to shareholders that the future of one of these combinations is worth now than $31 a share today. Doing nothing would require even more selling. I can’t see that Jerry Yang and Sue Decker will be even close to convincing on that score.
So there you have it. Yahoo is history.
The offer, $31 a share in cash and stock, is a 62% premium to Thursday's closing price. Yahoo shares jumped to $29.45 in premarket trading. Microsoft closed at $32.60 and dipped to $32 premarket.
Read the full article (subscription).
Now this is not something out of the blue. It's been in the works since early 2007, when Microsoft started feeling the heat from Google's rapidly increasing search market share, and Yahoo's share of the search market started dropping. The two companies have had held informal discussions in the past, and Yahoo could fetch $50 billion, the New York Post reported, citing banking sources..A combined Microsoft-Yahoo "would still trail Google in market share and search advertising . . . but they would be a much bigger threat to Google," Stanford Group analyst Clayton Moran told CNBC...
Whatever happens to the combined behemoth that would emerge after the merger, one thing is absolutely going to happen in the next couple of days - Yahoo! shares are going to shoot up.
A Microsoft-Yahoo merger makes sense from more than one angle. First, neither has the ability to take on Google on it's own. Put together, they might have a chance if Google makes a mistake. Secondly, Yahoo is going down, as we discussed here, and every quarter from now, the results are going to be even worse. If they want to sell and let Microsoft worry about Google, no time like the present.
Update 1: CNNMoney.com has the full text of Microsoft CEO Steven A. Ballmer's letter to Yahoo! Inc.'s Board of Directors. Excerpt below...
Board of Directors
Yahoo! Inc.
701 First Avenue
Sunnyvale, CA 94089
Attention: Roy Bostock, Chairman
Attention: Jerry Yang, Chief Executive Officer
Dear Members of the Board:
I am writing on behalf of the Board of Directors of Microsoft to make a proposal for a business combination of Microsoft and Yahoo!....In February 2007, I received a letter from your Chairman indicating the view of the Yahoo! Board that "now is not the right time from the perspective of our shareholders to enter into discussions regarding an acquisition transaction." According to that letter, the principal reason for this view was the Yahoo! Board's confidence in the "potential upside" if management successfully executed on a reformulated strategy based on certain operational initiatives, such as Project Panama, and a significant organizational realignment. A year has gone by, and the competitive situation has not improved.
In early 2007, they held talks about it. Yahoo thought they could still bring the ship around, but it didn't work. And now they are left with no choice. This is an offer Yahoo can't refuse. If you are Yahoo’s investment bankers, you would come up with a list of alternatives. You could look at combinations with the MySpace unit of News Corporation or the AOL unit of Time Warner....That sort of deal requires that Yahoo make the case to shareholders that the future of one of these combinations is worth now than $31 a share today. Doing nothing would require even more selling. I can’t see that Jerry Yang and Sue Decker will be even close to convincing on that score.
So there you have it. Yahoo is history.
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