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.
Microsoft is merely trying to signal to Yahoo shareholders that it would be open to re-engaging if a change in management occurred.
To me, this is very helpful information for Yahoo shareholders to have before the vote.
It’s also helpful for Yahoo shareholders to have a pitch from their current management on what their future value-building plans are. (The shameless PPT deck, which attempt to re-tell history, filed with the SEC is another story, IMO. THAT crossed a line to me…)
If an all-out proxy fight (threatened before) didn’t cross the line, this is very well before it. In my view, it’s completely appropriate to do so and doesn’t cross any line.
PS: Put another way, if Microsoft did NOT signal that they’d be open to further negotiations with new management, then Yahoo shareholders would be left to speculate whether this might happen under new leadership, or whether Microsoft (apparently the only suitor available to pay a large sum) has forever closed the door on an outright acquisition.
This is an election, and this kind of information, along with Yahoo’s purple SEC PPT deck, is all part of the campaign. To me, that doesn’t cross any line at all.
Wow. Are you kidding?
A friendly yahoo-microsoft deal requires trust. Yang and company didn’t really want a deal, and Microsoft didn’t want to destroy the intrinsic value of yahoo by going hostile and alienating the talent that provides Yahoo’s value.
Now that Yang and the Yahoo board are under fire for not taking a good deal when they had it, some of them may have changed their minds.
But the trust is gone. If Yang and the Yahoo board wanted to re-build that trust, they certainly could begin going down that road and maybe over time they could achieve that goal.
The fact that they’ve alienated their own shareholders to the point there may not be time to re-build the trust required to consumate a deal is not something you can reasonably lay at Microsoft’s feet.
And even though the Google deal was apparently struck as a desperate attempt to make Yahoo shareholders forget that management screwed them, it certainly makes the trust re-building road even longer. I’m not sure what private “prostrations” you think Yahoo has made toward Microsoft, but actions speak a lot louder than words.
Net-net: It’s scarcily imaginable that you would be criticizing Microsoft for not wanting to continue negotiations with an at best divided board and hostile management that that actively worked to destroy value rather than allow a deal.
Mike - you have to keep your ego in tap. Seriously. I mean this all sounds a bit too self important…
“I wont stand by quietly while Microsoft destroys whats left of Yahoo”
you’re a blogger, just blog and move on…
Last I heard MS was not a social entity. They do not need to look after Yahoo or search or anything. All they need to look after is their own interest. Why is anybody surprised by that?
If they think they can destroy Yahoo and in some way gain from it then of course they will and should do that. Last I remember this is still capitalism and free economy and survival of fittest rules. Why will anybody expect anything g else I never understood. These are multi billion dollar organization going after each other…..
Michael,
I know this should be obvious by now but could you explain why 2 is better than 1 at competing with Google?
Why would Microsoft-Yahoo compete against Google better than Yahoo alone? It can’t just be the synergy of aggregating two audiences, given that Yahoo’s audience is for many of its properties already #1. The 18 months following a merger would be characterized by goat-rodeo meetings and politics.
And it can’t be money. It seems like Yahoo’s challenge is attracting top-flight engineers and entrepreneurs, not in having enough money to pay them.
I’m not denying that Yahoo has a massive morale and retention problem, which Jerry Yang has been helpless to reverse, or even that Microsoft’s bid was good for Yahoo’s shareholders, but I’m not sure anyone would rather work for Microsoft-Yahoo — which is why it’s hard to imagine an acquisition will actually do much to stop Google in search.
As a share holder, anything that keeps those idiots at Yahoo who ruined the deal last time out of the way sounds like music to my ears.
This is my favorite Michael Arrington post that I have ever read. It shows, IMO, maturity, growth and character.
Too much of life, including business, is, I feel, ego-driven. Michael is right to focus on the needed checks and balances, and his ability to refocus, even reverse himself as evolving circumstances dictate is very apparent (and, to quote the famous line, truly a good thing).
Basically, this is Microsoft so they can do some wacky thing like this without anyone dare to stop. If it was someone else then they already got fried.
MS has the luxury being a giant but you never under-estimate the small guys. I suspect Yahoo is about to do something that will stunt everyone and MS again.
This time buying AOL!!!
That will be definitely a blow to MS but again, if that happen, what can the giant do? MS will loosing face, no search, no deal … and definitely no game.
I think Yahoo’s shareholder is way too panic. Just calm down!!!
If they show they was so desperate for a buy out, then the seller going to put on any price as he/she want. The whole idea about letting a man who does not know anything about internet, not even using email and running A High Tech Company is very very stupid!!!
It’s a good way to put everything into the ground!!!! Icahn basically nothing but a pawn of Microsoft.
If Yahoo won’t sell to MS right now, they still all right make some profit and being second. But MS is another story so desperate running around looking to buy stuffs.
If I was Yahoo, AOL is my next move. I mean, if I own AOL, what can MS buy now? … basically nothing!!!
(If Yahoo buy AOL, Yang is not that crazy … but after all a brilliant man.)
But when Microsoft pulled its bid just as Yahoo was about to accept and replaced it with a search buyout deal
“About to accept?” That’s like hearing about a crack dealer dying in an accident that he was “just turning his life around” Funny how that things were “just about to happen” only to get cut off with no fault to the original party.
I think the author has displayed, through the article, his lack of understanding of the process/game that makes up the world of mergers and acquisitions. There is a lot more going on than just the “tech” view of what would help balance the internet.
Who care about your thoughs Michael?
All your posts are done mostly to make the largest buzz around.
Take vacation and think about the planet and forget money. You will be better helpful.
Say it ain’t so Harriet? Microsoft being a bully? No waaaaaaaaaaaaaaaaay!!! Its no big surprise Microsoft has always had the clouted view that it’s there way or the highway. Why should they change now?
whether it’s personal or not, i’d say Yahoo (aka Yang/Decker/board) massively screwed the pooch by rejecting a deal at a substantial premium to the current stock price, adopting anti-shareholder poison pill restrictions, and in particular, implementing a severance package so insane it brings to mind the sheriff in Blazing Saddles holding himself hostage at gunpoint.
at this point, Yahoo & Yang have no one to blame but themselves.
i was a little skeeved by the Icahn / balmer back room discussions, and will be voting my very small amount of yahoo shares in favor of keeping the Yang Gang in charge at yahoo. thats for the tip mike!
steve ballmer didn’t make this personal — jerry yang did, and right from the beginning. “it’s MY company, and YOU can’t have it!” has been his entire position; he has negotiated (if i can use such a kind word) this deal from the perspective of a windows-hating linux geek, not the CEO of a world class corporation. not surprising, as jerry doesn’t have much business experience — he never worked anywhere but Yahoo, and the one thing everyone seems to agree on is that Yahoo is a badly-managed over-bureaucratized company where it’s almost impossible to get anything done.
Here here Michael!
M$ buying out Yahoo has never been about improving the search market. It’s just about hurting Yahoo and hurting Google. It’s well known that Steve Ballmer has made his quest to stomp out Google personal. He’s obsessed by this. No one wins in this scenario except the shareholders, Steve Ballmer and Google (ironically). The customers, Yahoo employees and the search market as a whole will be damaged by limiting the search market. I don’t understand why M$ just doesn’t try to innovate rather than copying what’s out there (oh wait a minute; i do understand, this is typical M$ strategy from day one).
As far as Icahn is concerned, he’s just a toy for M$ or a friend doing back door deals with M$. I doubt he really cares about what this proxy means for the internet industry as a whole and for the customers (not shareholders).
I’m not saying that Yahoo shouldn’t be punished in some ways for various bad decisions and for not improving their value to the shareholders. So in many ways they deserve what they’re getting as more than a wake up call. But this scenario isn’t good for anyone.
msft is right here. why spend 50 billion when yhoo mgmt has been installing poison pill.
Too much “analysis” of a simple case of bargaining.
Look, Microsoft made an honest bid for Yahoo. Yahoo acted like children, and threw up roadblocks to prevent the deal (poison pill, etc). Now, Microsoft is engaging in legitimate business tactics by punishing Yahoo for stupidity through a lower price, and because they can, they want to clear the path by putting in a more agreeable board. Its not bad business, its just business.
Does anyone remember the Larry Ellison vs. Craig Conway pissing match a few years ago?
No? Exactly. My point.
Conway long forgotten, Peoplesoft part of Oracle now.
All you people calling Microsoft a bully need to get your head out of the sand. Microsoft is simply playing the hand that Yahoo gave them. Why should Microsoft hold back now? Doing what they are doing is saving their shareholders millions of dollars, and make execution of the transaction more smooth. Yahoo management could learn a thing from Microsoft in this case about acting in the best interest if its own shareholders.
[quote]his lack of understanding of the process/game that makes up the world of mergers and acquisitions. There is a lot more going on than just the “tech” view of what would help balance the internet.[/quote]
You got the point!!! It’s not all about balancing. If they think that way, why did Yahoo make a deal with Google? … It’s more about playing a game and strategic.
I agree with those that say this is all Yahoo’s fault. With the Aug. 1st meeting getting closer I’d expect more and more of this kind of positioning. Yahoo indicating they’d agree to a merger is just B.S. on their part. They played the wrong hand, and now have to suffer the consequences.
Mike - Maybe you’re right that Microsoft is taking advantage of Yahoo’s devastated credibility at this point. They’ve shaken Yahoo so severely at this point that maybe they think they can just go after the search business, which is their highest priority. But that would be devastating for Yahoo’s display ad business, which is the majority of their revenue - search and display ads need to be on the same ad platform.
The impact of display ads today is hard to measure so they can only sell impressions. But online vendors with both search and display ads (Google, Yahoo, Microsoft - which has its own display ad platform and doesn’t seem to need Yahoo’s) plan to track what display ads users see over time and then correlate that with search queries. That will make it possible monetize display ads with a higher price. Most of the brand equity and awareness they create today gets harvested by search ads. But Yahoo is under such pressure to do a deal they are willing to mortgage this future synergy. If they weren’t so incompetent at telling their story that might be different.
What?
How has Yahoo “literally prostrated themselves before Microsoft” ??
The only thing I’ve read was that Yahoo was “ready to enter into negotiations Microsoft”. That’s not quite prostrating themselves.
As far as I can tell, Microsoft made a VERY generous offer to buy Yahoo. Yahoo got greedy and said they wanted more. Microsoft even said in their offer that if Yahoo didn’t take the deal they would work on replacing the board. Then Yahoo goes out and gets into bed with Google. Again, how is this prostrating themselves before Microsoft? If I had to describe it, I would call it more like rejecting them, flipping them off, and then after the fact coming back to say ok so now if you want to give us a bunch more money we’ll take it.
Sorry Yahoo, you had your chance to play nice.
Gates isn’t going to play your game.
blah blah blah, Yang and gang should be thrown out on their ears for recklessly running that company into the ground. Refusing the MS deal lost share holders untold billions in near-term profits- added to overall market slide–wow, total blunder- fired, sued, in jail.
stop protecting these theives, cowards and criminals…
DEVELOPERS!DEVELOPERS!DEVELOPERS!DEVELOPERS!DEVELOPERS!DEVELOPERS!DEVELOPERS!DEVELOPERS!DEVELOPERS!DEVELOPERS!DEVELOPERS!DEVELOPERS!DEVELOPERS!DEVELOPERS!DEVELOPERS!
The current board would have been instantly ousted after an MS deal anyway (which is why they acted without regard for their employers: the stockholders), so replacing them beforehand is just an easy way to make the deal.
Good riddance, I say! This whole mess gives me another chance to make out like a bandit on Yahoo stock, something I had resigned myself to never happening until a few months ago!
Great article Michael. After a long time you said something nice about Yahoo! This certainly makes a lot of sense. MS has crossed the line and it sucks that they are just taking adv of the whole situation. I think they just want to destroy Yahoo! and than will just walk away with search. I dont think they are interested in buying Yahoo! anymore. They just want the milk for free, without the cow.
Step 1) Microsoft disillusions Yahoo! shareholders to vote out board.
Step 2) Yahoo! stock jumps.
Step 3) Icahn goes back to the table with MS, and gets low-balled.
Step 4) Yahoo! stock tanks.
Step 5) MS buys “cheap” Yahoo! for search / other technology.
Yahoo! gets screwed, Icahn gets screwed, MS wins and has less search competition.
Carl Icahn should kill his intentions of taking over Yahoo!. Jerry is going nowhere. He is here and he will stay here. The shareholder meeting will prove it.
Michael,
I must say, you are really misguided on this issue. Microsoft made Yahoo a sweetheart offer earlier in the year. Yahoo’s management team tried to milk Microsoft for even more, when they should have realized, frankly, that Microsoft was offering more than they were worth. To make matters worse, you blame Microsoft even though it was Yang who deliberately put poison pill provisions in place (eg. exorbitant employee severance package, etc) to stymie a hostile takeover bid. All the while, Yang and his board were actively screaming to anyone in the press who would listen that they were adamantly opposed to a Microsoft buyout, they were going to fight it, clash of two cultures, yadda, yadda, yadda. So, seriously, can you blame Microsoft from backing away? I don’t blame them at all. Yahoo (mis)management went into these negotiations in bad faith and, now, they’re going to have to face the consequences of their actions. Shareholders would be INSANE not to replace these clowns with someone like Icahn who’s more responsive to fiscal reality.
Arrington, I must admit that I’m impressed that you finally see things the way they are under the covers. TechCrunch may not be dead after all.
Kudos!
I’m curious to see what a day trader might be making off the stock of these two companies as they go round and round each other.
I thought John C Dvorak talked about this early on but no one has mentioned it since. Isn’t it possible that MS has never had the intention of buying Yahoo. They only want to get rid of them by having it play out just as it has.
I could have guessed that Jerry Yang would never want to sell to MS unless the offer was very high(probably too high). MS makes an offer that is below this, knowing it would not fly, not budging towards the high number and pulls out sending Yahoo in a tail spin.
MS knew Icahn was involved and could have guessed how he would react to this. Now MS stokes the fire more by saying they will only deal with a new board. What if a new board gets in and MS decides to not do a deal. Now Yahoo has a board and upper management desperate to sell, with no buyers and no skills at running Yahoo. Yahoo is finished, mission accomplished. And MS still has $40+ billion in the bank.
Maybe its to far fetched, but it sure seems like something MS would be willing to do to get rid of some competition.
Here’s the problem. Yang and Co. were out gunned and out flanked from the very start of this whole debacle. They could have walked away with a nice payday and virtuous reputations, but instead they jumped whole-heartedly into George Costanza School of Negotiation play book. Overall poor judgment and failure to appreciate the reality of the situation on Yahoo’s part. Flailing and bleeding into the water they were caught totally unaware. If it wasn’t Icahn, it would have been someone else. Icahn could give a horseshit about Yahoo as a company. He’s in it to make money. That’s what they do on the street… deals. He didn’t get rich by trying to make the world a better place. Larger implications about companies and state of the internet don’t factor in to these decisions even if they are given lip service. I think all blame for the situation rests squarely with Yahoo for not fully appreciating the chess board they were sitting on.
Michael,
You’re a blogger, not a businessperson. We all know you’d like to be thought of as a serious Internet person but most view you as a purveyor of small company tech gossip, and a good one at that. Stick to your area of expertise and stop trying to comment on the major Internet issues of the day. I simply do not believe this is your strong area.
Its in their DNA. This is who Microsoft truly is. At least at the top while all the 1st generation leadership is still there. Steve Gillmor and some others want to believe that Microsoft no longer behaves like the ‘convicted monopolist’ it once was. I do not think this is the case. Like the Quicken boys said back in the 90s, negotiating with Microsoft is like getting in a ‘knife fight’. This is why I don’t want the merger to go through.
But I know I’m naive and romantic. I care about culture and civilization and believe that sometimes it should trump shareholder profit concerns. I don’t like the example Microsoft sets for the culture. Nor do I appreciate the work of Carl ‘Gordon Gecko’ Icon for that matter.
But this is easy for me to say since I dont have any skin in the game. I don’t stand to profit massively from the merger. And I understand there are Yahoo employees who need to see the stock do better. I’m sure many Yahoo employees are ambivalent about a merger. I wish the employees well and I appreciate what Yahoo had done for the net community and culture over the years.
Mike you, you FLIP FLOPPER! No Obama VP slot for you! It seems to me that the antagonism the existing board showed to Microsoft is reason enough for MS to want them out. From a practical point of view MS must control this deal, and the current board has show no indication they’ll let that happen now or in future.
Icahn was MS perfect knight in shareholder armor for the task, so it’s no surprise they are now going for the Y.. uggular.
Yang screwed millions of stockholders by treating yahoo as his personal toy - now he should pay for it…
I still haven’t seen anybody ever provide an example of a significant acquisition by MSFT that has improved the offerings of that company.
MSFT have played the game brilliantly.
I can’t stand Icann and how he goes about his ‘business’ though..he’s the worst kind of locust as the Germans would say
However, the acqusition is probably best to keep balance with big G
For Steve Ballmer it was always a personal ego thing to buy Yahoo!. He must already feel massively embarrassed to loose so much to Google. This guy is dangerous.
I have never been a supporter of Microsoft buying Yahoo–despite the arguments that we need a healthy competitive market for online advertising. It’s because Microsoft has many other uses for its $40 + billion. Its core business is weak and it can use the money to shore up its position in Enterprise, Mobile and Videogames. But, its obsession with Google is driving its behavior. And Ballmer joining Icahn is another indication of its Google obsession. Ballmer may still get Yahoo (minus its current management team and smart Engineers who have bolted already). Whether that would be enough for them to win against Google is a different story. We are in a deal-crazy world and history is often easily forgotten (remember AOL-TimeWarner? Daimler-Chrysler?). Post-merger integration and value creation are problematic. And, here Microsoft is truly crossing a line of its historical competencies.
The Pageman is right:
s/alter/altar/
“I won’t stand by quietly while Microsoft destroys what’s left of Yahoo just because it can.”
But that is exactly what Microsoft does.
Michael, where is the logic of destroying something MS wishes to buy
I have never heard so much twaddle in all my life!
“Let’s go out and buy Yahoo for 30-40Billion, oh and by the way lets drag their value down as far as we can before we do that ! ”
What nonsense, it’s amazing!
Whilst they may (or may not) have taken the rebuff personally (I wouldn’t know and doubt you would either) what you suggest has no foundation in fact or logic.
I do like the idea of the merger. But it getting to be like bullying amond school kids.
This is getting very personal. Google might have the last laugh.
Some competition is good….