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February 11, 2008

Microsoft Responds

Michael Arrington

57 comments »

There are two very different battles going on between Microsoft and Yahoo. The more interesting side is the behind the scenes attempts to influence press and key shareholders. But this is also playing out publicly. Yahoo leaked this weekend that they were going to turn down the Microsoft offer, and today they came through with the formal rejection.

Microsoft responded quickly via a press release:

MICROSOFT RESPONDS TO YAHOO! ANNOUNCEMENT

Reiterates Full and Fair Proposal for Microsoft-Yahoo! Combination

REDMOND, Wash. — Feb. 11, 2008 — Microsoft Corp. (NASDAQ:MSFT) today issued the following statement in response to the announcement by Yahoo! Inc. (NASDAQ:YHOO) that its Board of Directors has rejected Microsoft’s previously announced proposal to acquire Yahoo!:

It is unfortunate that Yahoo! has not embraced our full and fair proposal to combine our companies. Based on conversations with stakeholders of both companies, we are confident that moving forward promptly to consummate a transaction is in the best interests of all parties.

We are offering shareholders superior value and the opportunity to participate in the upside of the combined company. The combination also offers an increasingly exciting set of solutions for consumers, publishers and advertisers while becoming better positioned to compete in the online services market.

A Microsoft-Yahoo! combination will create a more effective company that would provide greater value and service to our customers. Furthermore, the combination will create a more competitive marketplace by establishing a compelling number two competitor for Internet search and online advertising.

The Yahoo! response 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.

On February 1, 2008, Microsoft announced a proposal to acquire all the outstanding shares of Yahoo! common stock for per share consideration of $31 representing a total equity value of approximately $44.6 billion and a 62 percent premium above the closing price of Yahoo! common stock based on the closing prices of the stocks of both companies on Jan. 31, 2008, the last day of trading prior to Microsoft’s announcement. Microsoft’s proposal would allow the Yahoo! shareholders to elect to receive cash or a fixed number of shares of Microsoft common stock, with the total consideration payable to Yahoo! shareholders consisting of one-half cash and one-half Microsoft common stock.

About Microsoft

Founded in 1975, Microsoft (NASDAQ: MSFT) is the worldwide leader in software, services and solutions that help people and businesses realize their full potential.

Yahoo says the offer is “massively undervalued.” Microsoft counters that it is a “full and fair proposal” and makes it clear that they won’t back down. Who wins? I still think Microsoft. But I love that Yahoo’s putting up a fight. And I love the ping-pong back and forth public statements, too.

  • Sphere It

This entry was posted on Monday, February 11th, 2008 at 2:47 pm and is filed under Company & Product Profiles. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.

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  1. Microsoft responds to Yahoo rejection « Dan’s Tech-n-Stuff Weblog

    February 11th, 2008 at 4:20 pm

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  3. For Evolution

    February 12th, 2008 at 2:20 am

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    February 12th, 2008 at 5:35 am

  5. » Microsoft resonds to Yahoo’s Rejection BINC Blog: The BINC Blog

    February 14th, 2008 at 9:14 pm

Comments

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  1. Brian

    February 11th, 2008 at 2:49 pm

    I was reading about this a few minutes ago on Tagsum. It’s going to be an interesting few weeks here.

  2. Billie G

    February 11th, 2008 at 2:51 pm

    Yahoo was at $19/share when MSFT made the offer and now they’re at $31 only because of MSFT’s offer. Now the team at YHOO wants $40/share. The problem is that they aren’t worth $31 so they’ll tank eventually.

    Bunch of noobs.

  3. Search◆ Engines Web

    February 11th, 2008 at 2:51 pm

    GET READY FOR THE MOTHER OF ALL HOSTILE TAKEOVERS :-o

  4. ValleyGuy

    February 11th, 2008 at 2:52 pm

    This is a done deal. Its check-mate for Y!… I don’t see what options it has? Let the stock go back to 18???? Like thats gonnaa happen….

  5. Todd

    February 11th, 2008 at 2:56 pm

    Not check mate. Way too many anti-trust and predatory practice skeletons in Microsoft’s closet.

    Fight Yahoo, fight!

  6. Andy Gongea

    February 11th, 2008 at 2:59 pm

    I think that by now everyone is tired of this love story.

  7. Live Footy

    February 11th, 2008 at 3:02 pm

    I hope at the end Microsoft will buy Yahoo,so Google can find something to fight at the market!!!

  8. John Furrier

    February 11th, 2008 at 3:02 pm

    Yahoo takes what I call the “Silicon Valley Poison Pill”

    http://furrier.org/2008/02/11/.....microsoft/

    Microsoft is buying time to change their offer while Yahoo is figuring out their next move.

  9. Burgey

    February 11th, 2008 at 3:06 pm

    I believe Yahoo is fighting a battle they can’t win.

  10. The Hater

    February 11th, 2008 at 3:07 pm

    @1: Your website sucks. That was the most transparent traffic ploy ever.

    Again, the people who think Y! is overvaluing themselves do not understand the big picture. More than any other company, Y! is ideally suited to make a big, big splash in the social networking scene. They have the information stored (Flickr, Messenger, Mail, Local, etc.) due to their portal, and they have the volume of visitors (#1 website in the world) to reach out to a very lucrative sector of the market that is untouched by both Facebook and MySpace.

    Y! is the world’s biggest social network. They know it, they’re working on it. If you can’t see that, then you’re letting your own blinkers blind you. Keep it in mind - Y! is the world’s most visited website. You might not use it - you’re so cool, you best-in-breed tech gourmand, you! - but your Mom does, your Dad does, and a whole lot of people overseas do.

  11. J Stern

    February 11th, 2008 at 3:08 pm

    Pride is important.

  12. carhug

    February 11th, 2008 at 3:09 pm

    Yahoo management has the right to believe that MSFT’s offer significantly undervalues Yahoo’s true worth. However, i think this is wishful thinking on their end. Given that their stock, pre-MSFT offer was sub-$20, its value has risen only due to MSFT’s premium offered. Some of Yahoo’s stockholders are now publicly stating that they actually think Yahoo’s stock is going to tank and are eager to proceed w/MSFT’s offer. MSFT is in very strong position to win over the stockholders’ approval and ultimately buy Yahoo.

  13. Monu India

    February 11th, 2008 at 3:13 pm

    What ever it be.. partly going with what @Billie said above..

    retail traders (investors) in the stock would have something to smile about..

    and well.. if i have to throw my hat in the ring (betting on what happens.. lol.. NOT on bidding).. i think, this juggernauts gonna be there for some time.. and till then.. the prices rises would give these people enough reasons to smile.

    Eventually, M$ would find something else to do and go about taking up and over other businesses (and also the criticism of existing stuff they have to make better)

    Yahoo founders would get more media bytes and Google would linger ON till it can figuring out its moves

  14. jro

    February 11th, 2008 at 3:14 pm

    @8: Microsoft has unlimited time here; Yahoo is the one trying to buy time.

    So far, the public conversation looks like this:

    MS: Yahoo, we’d like to buy you for $31/share. How about it?

    Yahoo: No way, that totally undervalues us. Even though the market disagrees, we think we’re much more valuable than that.

    MS: The offer is on the table. Do you want it or not?

    I’m sure the private conversation is much more interesting, but in the end, how can Yahoo really avoid this? Even with all the partnerships and other alternatives that have been mentioned, nothing gets the Yahoo shareholders more rightside-up than the MS offer.

    Kudos for Yahoo in trying to get the offer raised, but I can’t imagine the stockholders are interested in corporate cat-and-mouse for too long, given they see a way to improve their investment value in a big way. Yang and Gang are on the clock.

  15. Sean Hanitteri

    February 11th, 2008 at 3:14 pm

    Yeah I agree.

  16. Your Daddy

    February 11th, 2008 at 3:15 pm

    MSFT will pimp them Ho’$ Yahoo is fkingup!

  17. Options

    February 11th, 2008 at 3:18 pm

    It’s so funny to hear so many smart people say: “I don’t see any other options.”

    It seems like the most obvious “option” would be for Yahoo to ship great products and radically improve the lives of it’s customers — this is essentially the process the executive team was kicking off before this unsolicited bid came on the scene.

    While I know it may be hard for some to imagine that Yahoo would suddenly get its groove back, Apple fought back from a much worse position (remember $6/share?). For all the posturing on both sides, the real underlying question is which ownership configuration would create the most value for *customers* in the long term. It would be tragic for a myopic push for short-term shareholder value (and/or acquisition price) to eclipse that more fundamental discussion.

    If Yahoo is “massively undervalued,” it’s because its board believes that an independent company has much more long term potential than a combined company would. Microsoft clearly disagrees, and on a financial basis, their “premium” looks impressive, but imagine the world if Microsoft had swooped in and purchased Apple when they were hurting at $6/share… Would that be a better world?

    That’s the question we should all be asking — not what sale price is fair.

  18. Steel

    February 11th, 2008 at 3:26 pm

    Yang isn’t a leader. He’s a follower. The problem is he followed a CEO almost to the bottom of the barrel and now, he is being pushed around by his top execs and board members looking for the Mother Payload. To reject the offer only serves as proper corporate protocol. He had no choice but to formally reject it hoping for more of an offer. He was tired of the corporate zoo or he would have been more involved than he has been in recent history. He is in a corner and MS will eventually win.

  19. jro

    February 11th, 2008 at 3:30 pm

    @17: that’s a great description of something that no one else is saying clearly. Well done.

    That said, the similarity with Apple ends at comparison of share price. Apple grew their customer base as a result of their actions, and that ultimately led to their resurgence. Even though it wasn’t long ago, it was a different time, different place, different environment, and ultimately different people.

    If there is a clear monetization plan for products that bring value over what MS is offering, then the Yahoo team should bring that front and center. It sounds as though the Yahoo exec team is saying “just give us more time, and we’ll get it figured out”.

    Given how long they’ve been in play, I think the confidence from shareholders in this team to execute on a plan that brings more value than an MS merger is a tough sell right now.

  20. John

    February 11th, 2008 at 3:30 pm

    Are there any actual comments from big Yahoo shareholders yet?

  21. Techyob

    February 11th, 2008 at 3:34 pm

    Institutional investors will sue the pants off the Yahoo board if they do not take on the offer.

    A control premium is normally 30% premium on the market value. 60% is a gift.

    If they decline the bid, their stock will tank below $19 based on loss of confidence in the board - and whats more they will get sued for the $12 difference in value that they flushed down the toilet.

    Deer in headlights.

  22. Ray Burt

    February 11th, 2008 at 3:36 pm

    Yahoo shareholders will revolt only in fheir stock goes down. Otherwise, they get near full value right now by selling on the open market.

  23. Aidan

    February 11th, 2008 at 3:40 pm

    @17 I agree with you, Yahoo has been hit when most vulnerable. I think they must have a good plan to monetize the sheer amount of pageviews they manage with their sites and their partners.
    It’s also funny how everybody laughs at the fact that Yahoo launched and killed so many small projects lately, but isn’t that much better than keeping a thousand losers projects for too long? How many of the brilliant ideas Google had in the last few years actually had a monetizable success? And they don’t kill them, just left there. Google will find itself in a similar sitaution in a couple of years with too many people, too many managers and far too many projects.

  24. Duncan Riley

    February 11th, 2008 at 3:40 pm

    massively undervalued them…so Yahoo thinks the market was wrong, yeah right. They should be grateful for the $31/ share

  25. LiveCrunch

    February 11th, 2008 at 3:53 pm

    This is just free advertising for yahoo and microsoft thats all. I mean how many blogs wrote about it, how many websites and forums are talking about it. Also all radio and tv stations are rumoring about it too. On the end nothing will happen and microsoft and yahoo got free advertising

  26. Don Wilson

    February 11th, 2008 at 4:01 pm

    Yahoo clearly doesn’t know it’s place in the market share. As Duncan said, they should be grateful for the offer.

  27. Dan

    February 11th, 2008 at 4:03 pm

    People never ceases to amaze me!

    ‘Massively undervalued’ - Compared to what? Are they that arrogant that they claim that the ‘actual value’ of the company is ANYTHING else than the value assigned by the stock market?

    Pretty ballsy (see. Stupid) to claim that a bid 30% over market value is an under valuation. Basically means ‘Our company is worth more but we are so bad at making the value visible that no one understands it’

    Saddens me..

  28. Anonymous

    February 11th, 2008 at 4:08 pm

    I hope M$ buys Yahoo so they lose 40B they will never be able to get back.

  29. Anonymous

    February 11th, 2008 at 4:09 pm

    I’ll start calling them M$HOO!

  30. Lamonte

    February 11th, 2008 at 4:12 pm

    So Microsoft wants to combine yahoo and Microsoft together?

  31. kevin

    February 11th, 2008 at 4:13 pm

    @25 -
    Are you stupid? Do you honestly think microsoft made the bid for “advertising” purposes?

  32. EH

    February 11th, 2008 at 4:15 pm

    In other news, the “EH” blog agrees that my opinion is well-reasoned and strikes to the heart of the matter!

  33. EH

    February 11th, 2008 at 4:18 pm

    LOL, Brian@#1 even replied to HIS OWN POST on his own blog. “Fagsum” more like.

    …and it’s “Yackrosoft.” Get it right!

  34. nitsuj

    February 11th, 2008 at 4:19 pm

    I agree with Duncan on this one.

  35. Wes

    February 11th, 2008 at 4:41 pm

    Yahoo! can be grateful for the offer (#26) but I think they can also hold out for more money. Nothing wrong with that. I think in the end they will be purchased but for more money. Good for shareholders.

  36. Larry

    February 11th, 2008 at 4:57 pm

    In this case I’d say Microsoft ‘could’ win the war but loose the battle.

  37. nitsuj

    February 11th, 2008 at 5:14 pm

    If is so undervalued why aren’t they actively buying back shares?

  38. nitsuj

    February 11th, 2008 at 5:15 pm

    (oops, that should say if Yahoo…)

  39. tomthree

    February 11th, 2008 at 5:20 pm

    the problem is that Yahoo has the pageviews but are doing a shitty job turning that into $$$. As a shareholder, I’ll take the MS stock thx.

  40. Zmax

    February 11th, 2008 at 5:43 pm

    Yahoo is only worth $31 to MSFT so Yahoo wants $40 or more, MSFT won;t pay it and they do not offer more so what;s next? The abrs bail and take the stock with it.

  41. more tomato sauce please

    February 11th, 2008 at 6:14 pm

    Guys over at Motley Fool dialed in the real financial numbers of this transaction - you should read the article. In short, it shows that the MSFT offering is much more than a 60% premium for YHOO. YHOO, pre-Mr. Softie bid was $19. The value of their stock, and their company, includes about $12 per share worth of assets of cash and equity in various Asian tech companies. So, the market actually values YHOO at $7 per share. Take MSFT’s offer of $31 per share, subtract out the same $12 for YHOO assets, and their offer of $19 a share for a $7 stock is extremely generous.

    MSFT has cash, has time, and has the upper hand. I would tell Commander Ballmer to sit back, wait, and take another bite in 2-3 months when the credit markets get worse, no other investor steps to the plate, and YHOO continues to misstep. MSFT’s 22 billion in the bank isn’t going anywhere. And no one else has the cash to make the purchase.

  42. more tomato sauce please

    February 11th, 2008 at 6:14 pm

    oops - should have included a link to cite my source (and give attribution) http://www.fool.com/investing/.....stake.aspx

  43. Vlad Mazek

    February 11th, 2008 at 6:21 pm

    @ #10:

    Can I have some of what you’re smoking?

    Yahoo Messenger, Groups, Flickr, Search, Local, Maps, Music and movies turning into a social network? Smoke on brother, not gonna happen. Those technologies are acquisitions of technologies used by the PREVIOUS Internet Generation, the same that wants nothing to do with the social networking.

    Same with friendster, orkut, picasa and other crap that used to be #1 and got smashed by what the high school and college kids now use.

    You can’t have a social network if nobody in your network wants to be social and your sites appeal to Internet’s geezers :)

    -Vlad

  44. Iqbal

    February 11th, 2008 at 6:44 pm

    This battle seems to be about the management and the shareholders, surely there is another group in the yahoo camp who could sway this in either direction, and that is the employees. Without the people yahoo is really nothing, and MS can spend billion and decades in time and not work out what yahoo is about without the team.

    So I guess its really down to the team at yahoo, I cant see the php team wanting to port over to ASP, its about time they got together and stood behind yahoo.

  45. sourceroot

    February 11th, 2008 at 7:03 pm

    @42 “Internet’s geezers” never thought of it like that :(

  46. YDRIVE

    February 11th, 2008 at 7:18 pm

    Lots of potentials either way… Google need to watch out… ;-)

  47. blah

    February 11th, 2008 at 8:31 pm

    yahoo’s investment in japan and alibaba is alone 10$ worth. 60% premium is just bullshit, yhoo was 33 couple of months back and 31$ is just 15% above yhoo’s mean over the last year. ballmer just nailed in the correct time after yahoo announced its 4Q results. and it made public , so share holders will not refuse over the so called premium.
    just 2 weeks before yahoo announced its 4Q results MS was ready to give 35$/share(courtesy: alleyinsider.com)

  48. Trader Lee

    February 11th, 2008 at 9:29 pm

    Take over yahoo. I think should balance the dominance of google in internet world. Google should also create a balance for MS in OS world.

  49. Steve

    February 11th, 2008 at 11:05 pm

    It’s so easy to say: Yahoo is stupid, noobs, not grateful… based on the premium…blah blah blah. If you just calm down and put some thoughts into it, you would understand they are just trying to “maximize their shareholders value” by milking for a higher price. Knowing that Microsoft really wants it and is willing to “pursue all necessary steps” (that means they won’t walk away from the deal easily), Yahoo is actually in a pretty good position to ask for a better deal. Do you know that Microsoft did actually propose $40/share way back ago? Words are Microsoft might go for $35. Also, everybody knows the first bid won’t be the only bid. They might be down, but they aren’t dumb. Goldman Sachs and Lehman Brothers aren’t dumb either.

    They might get their $40 or they might fall flat on their backs. But it’s all business. It’s all about the money. Watch and learn, one way or another. Don’t kick them when they are down. Remember, they are the one who received a hostile takeover.

  50. Shaheer

    February 12th, 2008 at 2:01 am

    Where’s the EU and their anti-competitive speech? I’m still wondering why they haven’t come up with an objection. If they merge, just how many companies will provide good competition? (not including the young startups, if any are related, since they are minor players… and considering Google/MS/Y! wrath, small start ups will face a hard time).

    Besides, speaking of startups, the only thing they DON’T need right now is two bulky organizations merging to form a gorilla. If that does happen, not only will there be mayhem (as expressed by Google in different words) but the new giant on the block won’t let the young companies an umbrella to work in.

    But I’m more concerned what the EU thinks about this. Isn’t this forming an anti-competitive market?

    And personally speaking, I don’t want two slow email systems (compared with Gmail) merging into one… needless to say both have ads that cover half of the screen… yes, what I may like is the increased pretty-ness of the email systems.

    Oh - and for everyone on Y!/MS, *if* the email systems merge, prepare yourself with a revolver to shoot spam ;)

  51. Kyle

    February 12th, 2008 at 6:21 am

    You’re right on with the strategic maneuvering in the press…Both parties are following the transaction communications manifesto…

  52. uploadchoice

    February 12th, 2008 at 6:26 am

    Now this is prestige issue for MS, I guess, they will try by any means to acquire Yahoo!

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