Until today I’ve largely been a big supporter of Microsoft’s efforts to acquire Yahoo. A couple of days before Microsoft placed its initial $44.6 billion bid for the company, I told Fox Business Channel that a Microsoft merger had to happen to save Yahoo (and I certainly wasn’t the first to say this, I just had magnificent timing).
Throughout the ups and downs and stupendous drama of the negotiations, I held firm that a deal was in the best interests of both companies. Not because I’m a huge Microsoft fan, but because the health of the Internet requires a competitive search market. Google controls too much market share and too much related search revenue. A counterbalancing force is needed to keep the system healthy. And Microsoft or Yahoo standing alone cannot counter Google.
But when Microsoft pulled its bid just as Yahoo was about to accept and replaced it with a search buyout deal that I described as equivalent to them trying to get the milk for free instead of buying the cow, I began to wonder if things were getting out of hand. Since then, Yahoo has quite literally prostrated themselves before Microsoft to get a merger done, even perhaps at a price much lower than Microsoft’s original bid. And Microsoft has largely toyed with them.
Yesterday’s shenanigans, however, clearly crossed a line. Microsoft and activist Yahoo shareholder Carl Icahn jointly announced that they’ve been talking, and that Microsoft may be willing to entertain a full buyout offer once again. But only on the condition that Yahoo’s board of directors is replaced: “We confirm, however, that after the shareholder election Microsoft would be interested in discussing with a new board a major transaction with Yahoo!, such as either a transaction to purchase the “Search” function with large financial guarantees or, in the alternative, purchasing the whole company.”
Icahn explained further, saying that Microsoft can’t be expected to let Yahoo stay in current management’s hands during the months-long closing period after a transaction is consummated. He added: “Jerry Yang and the current board of Yahoo! will not be able to “botch up” a negotiation with Microsoft again, simply because they will not have the opportunity.”
This is largely complete nonsense. During the transition period after a merger agreement Microsoft and Yahoo would be working closely and Yahoo would be unlikely to take any actions that jeopardize the deal. What’s far more likely is that Microsoft, led by CEO Steve Ballmer, have taken Yahoo’s rebuffs entirely too personally. It’s no longer just about business, it’s about destroying and humiliating the people who embarrassed Microsoft. And sadly, that has nothing to do with creating a balance of power in search.
Just as I criticized Yahoo for not quickly accepting Microsoft’s offer in early February before the mass executive exodus and destruction of shareholder value, I now point the finger at Microsoft. Yahoo is standing at the altar waiting for you to say “I do,” Microsoft. Time to put up or shut up.
I’m all for a merger. But I won’t stand by quietly while Microsoft destroys what’s left of Yahoo just because it can.
I think this is a good move.
Switch the board, bring Icahn and Mark Cuban, sell Yahoo!, then let Cuban buy the Lakers, finally!
It’s not Microsoft’s job to ‘Save Yahoo’. It isn’t the web 1.0 benevolent fund. Yahoo’s board and its founder had that chance several months ago and blew it with their student antics and poison pill defence. Who’s choking now? Yahoo is owned by its shareholders – the imperative for any company is to maximise its shareholder’s value, not preserve itself for posterity. If that value can be maximised by splitting up the group so be it.
not suprised – M’Soft has bullied many in the past and would carry on doing this till it has existance on planet earth.
Both Microsoft and Yahoo are acting as if their shareholders – the friggin’ owners of the company – are merely nuiscances (or worse pawns to be played.)
In truth, this has simply become an ego-fueled grudge match between Yang and Ballmer. And if I weren’t a Microsoft shareholder, I’d sorely wish for both of them to lose. Come to think of it, if you look at Microsoft’s stock price, both of them ARE losing.
With all the focus on Yang, shouldn’t the REAL question be why Steve Ballmer gets to keep his job?
Maybe it IS just business?
Carl Icahn may well have offered to sell at a price more attractive than Jerry Yang. This is just speculation of course, but then so is you saying “Ballmer personally wants to destroy Jerry Yang.”
Put yourself in Ballmer’s shoes, paying $29 per share instead of $33 is good business.
- Sri
By the way we just published the second part to the Microsoft Yahoo novel: “Little Yahoo and Papa Jerry”
http://www.tech...childhood-tale/
another Microsoft supporter saying “amen.”
Hi Michael, you meant “altar”?
Am I hearing you correctly, do you mean to suggest that Microsoft in general, or Ballmer in specific, are arrogant?
Quote:
“…Yahoo has quite literally prostrated themselves before Microsoft…”
Come on, Michael. You write for a living.
I don’t see what’s the big deal. This is business. They should be going for the jugular.
If MS ever get hold of Yahoo they will wish they hadn’t. MS needs to get smaller and nimbler, not even bigger. Even if they got Y for free it would be a bad move – thousands of disgruntled employees looking elsewhere whilst the do nothings sit tight. A nightmare for MS.
Better for Yahoo’s users for it to be broken up by private equity.
Michael, u’re right. This strategy is not the best even for MS’s interest.
It will be a bad PR move and also the value of Yahoo will shrink in the near future. The merger should happen now or never.
> I told Fox Business Channel that a Microsoft merger had to happen to save Yahoo (and I certainly wasn’t the first to say this…
Yes but many believe a merger will essentially be the end of Yahoo! as we know it. It will die a slow and painful death under MS.
> because the health of the Internet requires a competitive search market.
Like we’ve had a competitive OS market with MS. Give me a break.
Dude! What planet do you live on? I mean you would have to be a psycho (which I know you are) to believe that this wasn’t personal. Of course its personal. It has always been personal. It will always be personal.
And who’s worried about creating a balance in the search-force? Not me. Not msft. Not the russian commi mafia at google.
Msft will take over the search market by 2010. That’s a given. They are going all out at it and they will take over no matter what you think should happen or no matter what you want to happen. You can’t stop them no matter how much you blabber.
Let’s just hope your beloved google is still around by 2010 because next we are taking over google and making it a cool “gogle”, like in the 60s sunshades, you know?
Take it easy dude. And stop taking those meds, they might just be some white powder that are giving you an unnecessary high.
See you at the game.
I am confused. You seemed fine about it yesterday? What changed?
see my name
” During the transition period after a merger agreement Microsoft and Yahoo would be working closely and Yahoo would be unlikely to take any actions that jeopardize the deal. ”
How can you say that. What would stop Yahoo from acting against the deal. Corporate lawers, help us understand how these mergers work.
How refreshing
I love seeing someone call the coal black and I couldn’t agree more. Ripping out the current Yahoo! board would just eviscerate a company that was in the Internet game while Microsoft was still sucking the hind tit.
Good move I think!
balance of power?? is this cold war or what?
the web is the universe, there is no such thing as major power can enforce its interest in ruling other party (competitor). There are plenty spaces available and belongs to nobody…
Google is not controlling anyone… they just offer their services and people seems love them… This is web 2.0 era..
On Ballmer’s personal vengeance… let gossip channel do their part… report new innovation in this blog, Mike.
@15 – it’s almost impossible to stop individuals acting up, but any offer would have in place conditions relating to material changes to the business as at the time of that offer. You normally hope that with an appropriate DOA policy, corporate governance, retention bonuses etc the ship remains reasonably steady. Reality is much more fluid – esp around staff movements (and even more so when the business is already in flux pre-agreement – a’lah Y!).
oh comeon Mike, why would Yahoo’s biggest shareholder want to mess them up? He probably knows something you & I don’t
Michael’s multiple personality disorder would be interesting if it was followed by credibility. Clearly he still wants a deal so what does he care about the methodology.
Has NO ONE considered the possibility that Yahoo has the better web and search option just poor management. The problem is that folks like Icahn are unwilling to replace the management and let the company work things out. All they want to do is sell to Microsoft.
Let Microsoft fix their disastrous OS business which after Vista I’m guessing we can all agree needs focus. Let Yahoo fix their business and become a true competitor to Google. I’m tired of the frame that Microsoft MUST be a competitor in the internet search marketplace. The world will not suffer if they don’t.
Someone please get Yahoo a strong visionary business oriented CEO with an eye towards restructuring and wrap this up!
>>But I won’t stand by quietly while Microsoft destroys what’s left of Yahoo just because it can<<
Wow, you must be REALLY powerful Mike. So then, what are you going to do exactly?
“I won’t stand by quietly while Microsoft destroys what’s left of Yahoo just because it can.”
Is this the part where you put on your TechCrunch superhero outfit (complete with tights, cape, and “TC” emblazoned on the chest), hop in the CrunchCopter, and roar off toward Redmond?
“I won’t stand by quietly while Microsoft destroys what’s left of Yahoo just because it can.” – Mike Arrogant
Unfortunately Microsoft have the upper hand here now, and I can’t blame them for pressurising Yahoo in this way.
It is simply a case of “new broom, sweeps clean” if it doesnt happen now, it will if & when they finally complete the takeover.
Gus hits the nail on the head with this:
“Yahoo’s board and its founder had that chance several months ago and blew it with their student antics and poison pill defence.”
The departure of Yang and the rest of the board would have only one effect that matters – it would actually push the stock price up.
Corporate lawyer speaking.
Generally, these things do take a while between when the agreement to do the deal is signed and when the company actually changes hands (signing date vs. closing date).
In the agreement to make this thing happen, there will of course be a clause which states something like “and until closing date, Yahoo promises to continue running their operations in the normal course of business and Yahoo management promises to act with the reasonable care of a prudent business person.”
There can even be more to it where “Yahoo promises to check with Microsoft and get permission if between signing and closing they want to do anything that could be considered important.” Generally speaking, this is just a promise not to sink the ship while all the details for the handover are being worked out.
Problem in this case is the length of time, the relationship between the parties, and the amount of money at stake.
Time-wise, it will take a really long time (Ballmer said 9 months; my personal bet is at least year-and-a-half) for this to get through antitrust authorities, especially in the European Union where Microsoft is one of the whipping boys the anti-capitalists love to beat up on. The longer this takes, the greater likelihood some bad event happens which makes the whole deal sour. Stuff happens.
The relationship between the parties seems none too friendly. Ballmer is kind of worried Jerry will torpedo the whole thing. And can you blame him? I love the anti-Microsoft crowd who call it the evil empire. Thing is, you don’t build an empire or become an incredibly successful business person by being a chump and trusting everyone you meet. Ballmer is a very clever fellow. Whether this is personal… ehhh I don’t know, could be. I’ll wait to pass judgment on this point.
Finally, the reason for all of this is the amount of money. Microsoft has to promise a lot of money up front and they want to reduce their risk as much as possible. I use some purely hypothetical numbers to illustrate my point.
Part of this is going to be financed by Microsoft shares. Depending on the formula the lawyers work out, the purchase price (just as an example, say $10 billion) will always remain the same but how much it actually costs in shares of Microsoft will be bouncing up and down (On one day, say MSFT is $20 and on the next it’s $22. Depending which number is used, Microsoft will have to “pay” more or less shares for Yahoo.)
The number of Microsoft shares to be used depends on their price which in turn depends on a very volatile stock market (especially mean lately). If after the signing has been done and Yahoo takes a dive, the markets will punish both Yahoo and Microsoft. Yahoo’s value will drop, meaning Microsoft will be overpaying for what they ultimately get. Microsoft will be punished as well because they are overpaying and get stuck with a loser.
Finishing out the numbers example, say the $10 billion is an accurate valuation, MSFT trades at $20 today, and Microsoft will fund half the acquisition with shares i.e. 250 million shares. After signing and before closing when Microsoft can legally manage Yahoo, Yahoo does something stupid. Yahoo’s actual value drops to $5 billion and Microsoft shares plunge to $10. Now, on the closing date, Microsoft still has to pay the agreed price, i.e. $10 billion, has to pony up 500 million shares (really pissing off their existing shareholders who just saw their ownership proportion dilute) instead of 250 million, and is getting a company that is actually worth $5 billion instead of $10.
That’s why Steve Ballmer letting the bride wait at the altar.
Sorry for the long explanation.
Interesting..
My 10 bits:
Its business. Since when has business PR stunts NOT been about making the other guy look bad?
MS need to leave search to Google. The simple fact is. Google works. Its a great search provider. Enough said.
MS need not waste money and let Yahoo go under or keep doing what they are doing (which currently isn’t much). They should focus their own efforts on improving the things they are doing, and doing well. Despite what others say, I think Vista is a great OS, and look forward to 7 and beyond. Live services are getting better and better. Visual Studio and all the goodness coming from/for the dev teams is amazing.
Screw Yahoo, they had their opp and they blew it. Let them pay for it. MS should just leave them be.
Disagree. Yahoo is still not interested in a deal with MS and would prefer to remain independent at all costs. Any price and proposal Microsoft brings to the table, Yang will only attempt to counter with another that is out of touch and only further frustrates MS and shareholders. Yang will burn Yahoo to the ground before he gives in to Microsoft. I believe if a deal was negotiated under his watch, it would probably be just an atttempt to hold onto his job until he figures out his next move (probably ensure that the deal is blocked on anti-trust grounds). If all else fails, he’ll leave Yahoo in ruins and then skip over to his new job at Google.
Gus hits the nail on the head with this:
“Yahoo’s board and its founder had that chance several months ago and blew it with their student antics and poison pill defence.”
The departure of Yang and the rest of the board would have only one effect that matters – it would actually push the stock price up.
True, Yahoo stock goes up, the Yahoo employees lose their jobs, Icahn get’s richer, and Microsoft still sucks.
When will Microsoft learn. I don’t see any value in a Yahoo buyout deal for Microsoft shareholders, short term or long term.
TRANSLATION: For some reason it’s worse for MS to destroy YHOO before a deal rather than afterward.
Takeaway: It’s about Microsoft’s share price, not Yahoo’s.
Microsoft is trying to save this dying company, just like it did Apple. Big softy is the good guy here.
So what are you surprised by? I told you when that idiot writer of yours wrote that Ballmer was on the hot seat with the deal going down that actually it would be Yang and Yahoo going down. MA, you should have enough knowledge of Ballmer to know that he will cut anyone’s balls who get in the way of his empire. You guys got fooled by the Yahoo spin machine, and this sounds like another Yahoo spin….crying how Ballmer is meddling in Yahoo’s affairs. The reality is that this is business, and not for the weak nutless techies that are wanna-be CEO’s. Ichann and Balmer will get Yahoo at $30 a share, mark my words.
Steve Ballmer is a giant douche.
Steve Ballmer is a giant douchebag.
What about Flickr?! Don’t kill Flickr!!!
oil and water don’t mix!
Yang made one of the biggest screw ups in the history of business. He didn’t just make a mistake, he intentionally killed the deal by:
a) Creating the severance package that pays Yahoo employees large sums so they can leave after being acquired. This means if Microsoft pays this huge premium for Yahoo, one of their biggest assets leaves right after Microsoft acquires them. This is pure evil on Yang’s part.
b) He said “no” to a great price.
Business is all about trust. Yang went out of his way to use dynamite and to completely destroy all trust between him & his board with Microsoft.
This is why Microsoft MUST get to new management before closing a deal:
a) It would be fine if Microsoft is now only willing to do the deal for $30 or $29. If they offered that now, then Yahoo can BOTH: 1) say ‘no’, and 2) make it impossible to switch management teams at or after the annual meeting.
b) It would be very reasonable if Microsoft requires the severance to be removed before acquiring Yahoo. I would require this if I was in Microsoft’s shoes (because that package is so evil). Microsoft needs to negotiate with a new Yahoo management team, otherwise Yang & crew will use it in the press politically.
c) Microsoft really helps employees and managers in an acquisition in their careers in Microsoft after the acquisition. I was a Microsoft employee long ago, and I’ve seen acquired employees stay 10+ years because their careers took off at Microsoft. Ray Ozzie is a very public example, but I’ve seen this at a smaller scale with scores of people (from aQuantive, eShops, Visio, and 10+ other companies). Microsoft can’t trust to have Yang as a VP at Microsoft. They want to have a good management team.
d) That severance package is so evil, how can Microsoft trust all of the other issues that Yahoo’s management would do during the integration with Microsoft.
Microsoft has learned that Yang can’t be trusted and there is no way that they can deal with him.
I have talked with senior people at Microsoft who handle integrating a company into Microsoft after an M&A transaction. They label some as “successes” and some as “failures”. This primarily comes down to the people and how they integration with Microsoft. Do the employees all leave quickly? (the Yahoo severance package forces damage here). Will Yahoo work well with Microsoft? That will all depend on the senior managers on down. Again, nobody at Microsoft can trust Yang.
Politically, Yang has to screw up so bad before Microsoft can back replacing him. Yang made one of the biggest screw ups in the history of business. He didn’t just make a mistake, he intentionally killed the deal by:
a) Creating the severance package that pays Yahoo employees large sums so they can leave after being acquired. This means if Microsoft pays this huge premium for Yahoo, one of their biggest assets leaves right after Microsoft acquires them. This is pure evil on Yang’s part.
b) He said “no” to a great price.
Business is all about trust. Yang went out of his way to use dynamite and to completely destroy all trust between him & his board with Microsoft.
This is why Microsoft MUST get to new management before closing a deal:
a) It would be fine if Microsoft is now only willing to do the deal for $30 or $29. If they offered that now, then Yahoo can BOTH: 1) say ‘no’, and 2) make it impossible to switch management teams at the annual meeting.
b) It would be just if Microsoft requires the severance to be removed before acquiring Yahoo. I would require this if I was in Microsoft’s shoes (because that package is so evil). Microsoft needs to negotiate with a new Yahoo management team, otherwise Yang & crew will use it in the press politically.
c) Microsoft really helps employees and managers in an acquisition in their careers in Microsoft after the acquisition. I was a Microsoft employee long ago, and I’ve seen acquired employees stay 10+ years because their careers took off at Microsoft. Ray Ozzie is a very public example, but I’ve seen this at a smaller scale with scores of people (from aQuantive, eShops, Visio, and 10+ other companies). Microsoft can’t trust to have Yang as a VP at Microsoft. They want to have a good management team.
d) That severance package is so evil, how can Microsoft trust all of the other issues that Yahoo’s management would do during the integration with Microsoft.
Microsoft has learned that Yang can’t be trusted and there is no way that they can deal with him.
I have talked with senior people at Microsoft who handle integrating merging a company into Microsoft after an M&A transaction. They label some as “successes” and some as “failures”. This primarily comes down to the people and how they integration with Microsoft. Do the employees all leave quickly (the Yahoo severance package forces damage here). Will Yahoo work with with Microsoft? That will all depend on the senior managers on down. Again, nobody at Microsoft can trust Yang.
Politically, Microsoft MUST replace him now while everyone has seen Yang huge screw-ups. If they get farther down the road during the deal or integration, then they can’t if Yang is not a massive problem. Microsoft can be unhappy with getting issues closed (like removing the severance package) but couldn’t replace Yang then.
CONCLUSION: Microsoft must replace Yang NOW or NEVER. Balmer has the fiduciary responsibility to replace Yang so he can get all of the issues (severance package) re-aligned for a appropriate financial deal for Microsoft.
YAHOO EMPLOYEES: I didn’t factor in Yahoo employees at all until now. Everything above explains why Microsoft must do what it is doing now. There is damanage happening to Yahoo employees, but Yang must take all of the responsibility there. That would happen in any M&A where the Yang equivalent forces abject DISTRUST with everyone in the acquiring company.
Yahoo employees should build their own “I hate YANG” pins and wear them around the office.
Microsoft is a trend maker, it makes something new and others copy it to defeat Microsoft, defiantly I am also a fan of Microsoft, and about this deal what to say just wait and see…but if deal becomes successful it will be a nice step in web world.
@34: “Microsoft is a trend maker, it makes something new and others copy it to defeat Microsoft”
MS didn’t even make MS-DOS for themselves…
michael,
this is simply business and neither party is a villan – as much as SV types would love a simplistic, star trek like plot. if logic had prevailed at yahoo, this would have been a friendly transaction in feb 2008 (or feb 2007). jerry is responsible for making this uncomfortable bed, and now that his bluff has been called, yahoo (and yahoo shareholders) are forced to lie in it. and it’s hard to have sympathy.
Interesting take. Another perspective: MSFT is just trying to get the best deal possible. Let’s not forget, this is business.
Interesting..
My 10 bits:
Its business. Since when has business PR stunts NOT been about making the other guy look bad?
MS need to leave search to Google. The simple fact is. Google works. Its a great search provider. Enough said.
MS need not waste money and let Yahoo go under or keep doing what they are doing (which currently isn’t much). They should focus their own efforts on improving the things they are doing, and doing well. Despite what others say, I think Vista is a great OS, and look forward to 7 and beyond. Live services are getting better and better. Visual Studio and all the goodness coming from/for the dev teams is amazing.
Screw Yahoo, they had their opp and they blew it. Let them pay for it. MS should just leave them be…Bob
I agree, this is business 101 and Yang and company blew it, if this was oracle instead of Microsoft the story would be different, it just Larry Ellison again up to his usual style of management.
Personally I would prefer that they forget about Yahoo, but I’m not in charge and don’t know all the details.
Here’s a hint to use in understanding what’s going on: it’s the jilted loser who makes the most noise about a breakup.
Yahoo missed their chance for a nice and generous takeover offer. Now they have to deal with the consequences of their incompetence. Why is it not okay for Microsoft to make it a stipulation in their offer to NOT deal with the current management/board if it didn’t work beforehand? I know Yahoo is now aching for a deal and more willing to accept a low-ball offer, but why should Microsoft have to look past their capricious tendencies from before? This is the business world; if you want to act like a child, you’ll be treated as one.
Michael Arrington,
I think most people disagree with you. You should put the following VOTE on this post.
“Who is at most fault for the PAIN felt by Yahoo Employees?”
a) Yahoo’s management
b) Microsoft (for not taking a deal now and waiting until after the annual meeting)
This whole thing is seriously starting to read like the screen play for “Meet Joe Black”