“Software giant Microsoft has dropped its three-month-old $44.6 billion takeover bid of Yahoo ends with less than a whimper.”
San Francisco — Microsoft has turned down its nearly three-month-long chase of Yahoo Inc. late Saturday after failure with the Web portal’s management team over the price, ending a historic acquisition attempt whose failure takes Microsoft back to square one in its quest to boost its online business to better compete against Google.
“Microsoft chief executive Steve Ballmer formally withdrew the offer in a letter to Yahoo chief executive Jerry Yang.”
The verdict to abandon the bid to buy internet firm Yahoo came after last-ditch efforts to negotiate a mutually acceptable sale price proved unsuccessful.
“We continue to believe that our proposed acquisition made sense for Microsoft, Yahoo and the market as a whole. Our goal in pursuing a combination with Yahoo was to provide greater choice and innovation in the marketplace and create real value for our respective stockholders and employees,” said Microsoft CEO Steve Ballmer in a statement distributed early Saturday evening.
In his letter to Yang, which has been posted on the Microsoft website, Microsoft Chief Executive Steve Ballmer said: “We continue to understand that our proposed acquisition made sense for Microsoft, Yahoo and the market as a whole.” Microsoft had increased its initial offer of $33 a share or about US$5 billion, but that did not convince Yahoo that insisted on at least $37 a share or $53bn – more than Microsoft was prepared to pay.
“After careful deliberation, we consider 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 Ballmer. “Despite our best efforts’, including raising our bid by roughly $5bn, Yahoo has not moved toward accepting our offer,” he added.
“The software maker originally bid $31 per share for Yahoo more than three months ago.”
The discussion reached on the verge of collapse after Jerry Yang and David Filo, the co-founders of Sunnyvale-based Yahoo, flew to Seattle to meet personally with Microsoft Chief Executive Steve Ballmer and Kevin Johnson, who runs the software maker’s unprofitable online services division, according to sources familiar with the talks. The person was not authorized to speak publicly and asked not to be identified.
“Clearly a deal is not to be,” Ballmer wrote to Yang in a letter sent late Saturday.
In response, Yahoo released a statement restating its point that Microsoft’s offer was too low, and saying that many Yahoo shareholders agreed with its position.
“Yahoo is profitable, growing, and executing well on its strategic plan to capture the large opportunities in the relatively young online advertising market,” Roy Bostock, the chairman of Yahoo’s board, said in the statement.
Yahoo CEO Jerry Yang said that “with the distraction of Microsoft’s unsolicited proposal now behind us” Yahoo can continue with “the most important transition in our history.”
Disappointments:
Sir Martin Sorrell, the chief executive of advertising group WPP, said his customers would be upset that Microsoft had abandoned its bid for Yahoo.
“A combination of Microsoft and Yahoo would have provided balance to the online advertising market place,” he told the BBC News website.
On the other hand, he added that Microsoft was a “capable and innovative company” and might still be able to provide a challenge to Google’s market dominance.
Analysts say Yahoo has exaggerated its hand and they expect the Web pioneer’s shares to fall as much as 30 percent to $20 levels when Nasdaq trading resumes on Monday. The stock rose nearly 7 percent to $28.67 on Friday on hopes of an agreement between Microsoft and Yahoo.
“Wow. I’m surprised Yahoo was not more realistic. The stock will probably go down at least $5 on Monday. It is surprising that Ballmer walked away instead of trying a hostile bid at $33,” said Walter Price, a senior portfolio manager at RCM fund Management Company in San Francisco, which had 21 million Microsoft shares and 2 million Yahoo shares as of the end of December.
“Laura Martin, a senior analyst at Soleil Securities, said she expected a number of shareholder lawsuits against Yahoo.”
“The Yahoo guys want too much money for their company. We think $33 a share is fair in the context of the weakening economic environment and adverse advertising trends,” she said. “They have prioritized employees over shareholders in the hopes that someday they can create more than $8 billion of value, even if they have no track record of doing so,” she said.
The software heavyweight had yearned to do a deal to be able to compete with Google, which dominates the lucrative market for internet advertising.
“This marketplace is currently worth $40bn in 2007 and is expected to double to $80bn by 2010.”
In a statement Saturday, Yahoo’s Bostock summarized that the company believed from the beginning that Microsoft had undervalued his company’s assets since the takeover tug-of-war began more than three months ago and the board was “pleased that so many of our shareholders joined us in expressing that view.”
“We continue to focus on maximizing shareholder value and pursuing strategic opportunities that position Yahoo for success and leadership in its markets,” Bostock said.
He said Yahoo was pursuing “strategic opportunities” but gave no details.
Yahoo also has pursued many prospective deals with Time Warner Inc.’s AOL Internet division or News Corp.’s MySpace online social network, and tested a search advertising partnership with Google Inc. A partnership with Google may be announced as early as next week, a person with knowledge of discussions told Reuters.
“With the disturbance of Microsoft’s uninvited proposal now behind us, we will be able to focus all of our energies on executing the most important transition in our history so that we can maximize our potential to the benefit of our shareholders, employees, partners and users,” Yahoo co-founder and Chief Executive Jerry Yang said in a statement.
The Surprising End:
The anticlimactic conclusion came as a surprise, given that several analysts considered that Microsoft wanted to close the deal badly enough to pursue a hostile takeover –- a risky maneuver that would have required an attempt to replace the Yahoo board that spurned rejected the bid.
While he had projected a hostile buyout bid last month, Ballmer said he reasoned out that waging a so-called proxy battle was “not sensible”.
In due course, it seems that Microsoft’s management, exhausted by Yahoo’s resistance and demands, decided that engaging in a proxy fight to oust Yahoo’s directors would be an arduous and nasty process.
“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,” Ballmer wrote to Yang.
Without the Yahoo acquisition on its platter, Microsoft can focus its attention more on core software business with abundance of funds available to buy more nimble Internet startups that could bolster its online operations.
Analysts consider that Yahoo -– with 500 million users, a cherished brand and the second largest ad network behind Google’s -– represented Microsoft’s best chance to remain a powerhouse as the Internet increasingly defines how and why people interact with computers.
“Subsequently, for Microsoft, the goal of the massive acquisition was to quickly become a mightier competitor to Google in online advertising.”