MS gives up Yahoo

By Candice Jones for Microsoft

Johannesburg, 05 May 2008

After more than three months of offers and threats, Microsoft has given up on its $47.5 billion bid to acquire Internet search company Yahoo.

The company first offered to buy Yahoo with a bid of $31 a share - a value of $44 billion - at the end of January. However, the Yahoo board publicly rejected Microsoft's offer. Chairman Roy Bostock and CEO Jerry Yang said Microsoft's offer did not meet the actual value of the company.

Microsoft last week released a statement and open letter to the Yahoo chief, confirming it has decided to back away from the proposed acquisition. "After careful consideration, we believe the economics demanded by Yahoo do not make sense for us, and it is in the best interests of Microsoft stockholders, employees and other stakeholders to withdraw our proposal," said CEO Steve Ballmer.

Earlier in the year, Microsoft gave Yahoo three weeks to come to the negotiating table or face the possibility of a hostile takeover. Ballmer warned the company would pursue a proxy contest that would be aimed at electing an alternative slate of directors for Yahoo.

Ballmer did not follow through on the threat and, according to his letter, Yahoo in turn has threatened Microsoft. "After giving this week's conversations further thought, it is clear to me that it is not sensible for Microsoft to take our offer directly to your shareholders. This approach would necessarily involve a protracted proxy contest and eventually an exchange offer. Our discussions with you have led us to conclude that, in the interim, you would take steps that would make Yahoo undesirable as an acquisition for Microsoft."

Fighting back

In the event that Microsoft followed up on its hostile takeover option, Yahoo reportedly would approach Google to outsource certain paid search terms. "In our view, such an arrangement with the dominant search provider would make an acquisition of Yahoo undesirable to us for a number of reasons," said Ballmer.

Microsoft cites regulatory and legal issues it would prefer not to inherit. More particularly, the company is concerned that selling out to Google would add to its already dominant competitive stake in the paid for online business.

Instead of the promised hostile takeover action, the software giant increased its bid, last week, to $33 a share. "This increase would have added approximately another $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% compared to the price at which your stock closed on 31 January. Yet it has proven insufficient..."

Yahoo is holding out for $37 per share. "From the beginning of this process, our independent board and our management have been steadfast in our belief that Microsoft's offer undervalued the company and we are pleased that so many of our shareholders joined us in expressing that view," said Bostock in response to last week's letter from Microsoft.

Yahoo's reluctance has finally pushed Microsoft away and it has cut its ties in frustration. "By failing to reach an agreement with us, you and your stockholders have left significant value on the table. But clearly a deal is not to be," concluded Ballmer.