First, I'm a little disappointed that this turned out this way. In February, it seemed as if Microsoft was gearing up for a proxy fight. But as March, then April, now May rolled along, Microsoft got tired, wimped out, and then withdrew without so much as firing a legitimate shot across Yahoo's! bow. Just a bunch of razzle dazzle shouting via the media. Although, it's probably for the better, for both companies, it's a bit anti-climatic. There is something exciting about two major companies going head to head, with the results somewhat unknown. Many thought Microsoft was going to bully its way into Yahoo! territory. Indeed, I was hoping it would happen. But alas, it did not.
Second, I really would have been curious to see how a hostile takeover of this magnitude and scrutiny would have happened. What defenses would have played out? And how would they have played out? We've seen Yahoo! attempt to seek out white knights, and play up a crown jewel defense (sort of) by possibly selling off Alibaba. Of course, Yahoo! also has a poison pill provision in its charter. In the event of a hostile tender offer to secure the Yahoo! board, it would have been interesting to see this work itself out, both in court, on Wall Street, and in the public eye. As a law student, such real life examples of corporate acquisitions, ones that are so heavily scrutinized by the media, are a rare opportunity to learn.
Lastly, on the subject of the media, how much did the constant gossip and speculation regarding the merger affect the outcome? Indeed, both companies had extensive media strategies. Most of the strategic details of the offer/rebuff seemed to have been leaked before they were ever offered/rebuffed. Seeing the success that Yahoo! has had in fending off its potentially hostile bid, does this help provide a new model in which M&A will follow? Or was MicroHoo an anomaly because of the high profile of the acquireor/target? I think MicroHoo will play, at least, some role in how mergers and acquisitions are strategized out in the future.
In all regards, it will be very interesting to see, as details filter out in the coming days, as to what led to the ultimate decision.
Anyhow, here's the letter from Steve Balmer to Jerry Yang regarding Microsoft's withdrawal. Congrats to Jerry and Skadden for the successful defense.
May 3, 2008
Mr. Jerry Yang
CEO and Chief Yahoo
701 First Avenue
Sunnyvale, CA 94089
After over three months, we have reached the conclusion of the process regarding a possible combination of Microsoft and Yahoo!.
I first want to convey my personal thanks to you, your management team, and Yahoo!’s Board of Directors for your consideration of our proposal. I appreciate the time and attention all of you have given to this matter, and I especially appreciate the time that you have invested personally. I feel that our discussions this week have been particularly useful, providing me for the first time with real clarity on what is and is not possible.
I am disappointed that Yahoo! has not moved towards accepting our offer. I first called you with our offer on January 31 because I believed that a combination of our two companies would have created real value for our respective shareholders and would have provided consumers, publishers, and advertisers with greater innovation and choice in the marketplace. Our decision to offer a 62 percent premium at that time reflected the strength of these convictions.
In our conversations this week, we conveyed our willingness to raise our offer to $33.00 per share, reflecting again our belief in this collective opportunity. This increase would have added approximately another $5 billion of value to your shareholders, compared to the current value of our initial offer. It also would have reflected a premium of over 70 percent compared to the price at which your stock closed on January 31. Yet it has proven insufficient, as your final position insisted on Microsoft paying yet another $5 billion or more, or at least another $4 per share above our $33.00 offer.
Also, after giving this week’s conversations further thought, it is clear to me that it is not sensible for Microsoft to take our offer directly to your shareholders. This approach would necessarily involve a protracted proxy contest and eventually an exchange offer. 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 for Microsoft.
We regard with particular concern your apparent planning to respond to a “hostile” bid by pursuing a new arrangement that would involve or lead to the outsourcing to Google of key paid Internet search terms offered by Yahoo! today. In our view, such an arrangement with the dominant search provider would make an acquisition of Yahoo! undesirable to us for a number of reasons:
* First, it would fundamentally undermine Yahoo!’s own strategy and long-term viability by encouraging advertisers to use Google as opposed to your Panama paid search system. This would also fragment your search advertising and display advertising strategies and the ecosystem surrounding them. This would undermine the reliance on your display advertising business to fuel future growth.
* Given this, it would impair Yahoo’s ability to retain the talented engineers working on advertising systems that are important to our interest in a combination of our companies.
* In addition, it would raise a host of regulatory and legal problems that no acquirer, including Microsoft, would want to inherit. Among other things, this would consolidate market share with the already-dominant paid search provider in a manner that would reduce competition and choice in the marketplace.
* This would also effectively enable Google to set the prices for key search terms on both their and your search platforms and, in the process, raise prices charged to advertisers on Yahoo. In addition to whatever resulting legal problems, this seems unwise from a business perspective unless in fact one simply wishes to use this as a vehicle to exit the paid search business in favor of Google.
* It could foreclose any chance of a combination with any other search provider that is not already relying on Google’s search services.
Accordingly, your apparent plan to pursue such an arrangement in the event of a proxy contest or exchange offer leads me to the firm decision not to pursue such a path. Instead, I hereby formally withdraw Microsoft’s proposal to acquire Yahoo!.
We will move forward and will continue to innovate and grow our business at Microsoft with the talented team we have in place and potentially through strategic transactions with other business partners.
I still believe even today that our offer remains the only alternative put forward that provides your stockholders full and fair value for their shares. By failing to reach an agreement with us, you and your stockholders have left significant value on the table.
But clearly a deal is not to be.
Thank you again for the time we have spent together discussing this.
Steven A. Ballmer