Microsoft Acquires Tellme

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1. Colin Dowling
   

   March 14th, 2007 at 12:40 pm

   They must have some seriously slick technology and some even better patents. Even with a large user base, paying that much loot for something better be defensible for the buyer.

2. Jay Gould
   

   March 14th, 2007 at 12:54 pm

   Mike do you have any thoughts on what you believe Microsoft plans to do with Tellme?

3. Bob LeDrew
   

   March 14th, 2007 at 12:55 pm

   Man, that wordmark looks like FedEx.

4. Wil Schroter
   

   March 14th, 2007 at 1:09 pm

   Great news for everyone! More M&A activity is always a positive thing.

5. Anthony Barba
   

   March 14th, 2007 at 1:28 pm

   I just re-listened to the Interview With Jingle CEO on TalkCrunch because I thought they were using TellMe, but they are not, they are using Nuance. I guess Microsoft can use Tell Me to do the same thing as free411.com with Live Local. Also there is revenue coming in from licensing this to AT&T, Fandago etc.

6. chris
   

   March 14th, 2007 at 3:01 pm

   Can someone with experience tell me approximately how much would go to whom in a typical acquisition like this?

   Would th VCs get everything, or would there be something left for the employees?

7. Dwayne
   

   March 14th, 2007 at 3:57 pm

   I think there is enough there to go around for the VC’s, founders, and some of the early employees in the company.

8. Gern Blanston
   

   March 14th, 2007 at 4:40 pm

   Most/all regular (salaried) Tellme employees (not contractors) were granted stock options when hired, and the vested options will be redeemed for cash at some point after the deal closes (I’m not at liberty to disclose the exact price, but if you divide $800M by the number of outstanding Tellme shares you’ll get a pretty good idea). I was hoping for a price about twice that of the actual, but I’m a greedy bastard with a hefty mortgage that I can’t afford.

   In truth, any exit event that allows all employees to redeem option grants for a price significantly above that which they paid should be considered a success. In my case I paid US $0.01 for most of my options, and was allowed to early exercise when I joined the company five years ago, so I’ll be getting long-term capital gains treatment (and hope to avoid AMT, but that’s another pipe dream). The unvested option grants of current Tellme employees will be converted to MSFT options with, in all likelihood, an identical vesting schedule, but I don’t know the details of that exchange (I no longer work at Tellme).

   To Chris’s question in comment 6, there is no typical formula you can apply here. Each exit event is a little different. Some take care of the employees and others do not, but VCs and early investors always come first — it’s the ol’ MCM’ circuit, you know.

   Gern

9. Chris
   

   March 14th, 2007 at 5:42 pm

   Thanks,

   I was under the impression that most VCs are looking for a 10x return … and if they put in 200 mm+ already, I would have normally assumed that most of the 800 would go to them … ?

10. Krishnan
    

    March 14th, 2007 at 6:32 pm

    @Chris,

    You make an interesting point that VC’s can have significant liquidation preferences which would give them a large percentage of the purchase amount. However, in those cases, the common stock would have little to no value - meaning that employees only have salary as an incentive to remain. Since presumably MSFT would want to retain some of the key employees I would assume that common shareholders (and option holders) have retained some value.

11. David Mackey
    

    March 14th, 2007 at 7:30 pm

    Wow. Thats a pretty hefty purchase. Haven’t even heard of TellMe though?

12. David Scott Lewis
    

    March 14th, 2007 at 10:37 pm

    I recall from my Microsoft days that Microsoft had/has a very rational acquisition strategy (i.e., very financially rational strategy): Buy companies that will likely increase shareholder value (i.e., Microsoft’s stock price) by more money than what they spent on the acquisition. In other words, Microsoft gets a free acquisition. Okay, it’s not quite this simple, but this is the gist of it — and it’s a brilliant strategy. I’m sure this rationale played a roll if TellMe was acquired for nearly $1 billion. It played a roll with WebTV, Hotmail, VXtreme, Great Plains, yada, yada, yada …

    Good for Microsoft. BTW, Google seems to use the same strategy. OTOH, I have no idea which strategy Yahoo! uses: Their acquisitions almost never seem to help their stock price. Maybe it’s some sort of Yahoo-kiss-of-death syndrome.

13. inside info
    

    March 15th, 2007 at 11:15 am

    Krishnan,
    There are other elements to post-acquisition compensation that go beyond just options grants. Specifically, most employees receive a retention bonus to stick around for a year or so after the acquisition and new stock grants as employees of the acquirer. I believe that retention bonuses are not priced into the acquisition price, so Microsoft could, in theory, provide the employees with incentive to stick around. Also, depending on how valuation increased, employees that just joined may not have received a very large bump in share price through the acquisition.

    Anybody have any insight into that?

14. karl
    

    March 15th, 2007 at 7:24 pm

    Wow. That’s about the dumbest thing I’ve heard in a while.

    http://www.dvd-to-psp.com

15. eli
    

    March 16th, 2007 at 6:22 am

    i heard that the acquisition price was $775 million from sources in both companies. Om is off the mark this time…

16. joe
    

    March 16th, 2007 at 8:40 pm

    I heard the employees own over two thirds of the company despite the amount of money they raised. They must have gotten incredible terms from the VCs in 99 and 2000. Good for them if true.

17. Daniel eDer
    

    March 26th, 2007 at 4:05 am

    I bet microsoft wanted to buy nuance a couple of times.
    Apparently, tellme has some voice technology which nuance doesn’t.