| Yahoo Has No Love for Microsoft - Rejects the $44.6 Marriage Proposal
Well, it seems that the ball is now in Microsoft's court as Yahoo has just officially rejected the Redmond company's $44.6 billion marriage proposal. On February 11, 2008, Yahoo's Board of Directors formally rejected the $44.6 billion unsolicited acquisition proposal from Microsoft, in a move that kept in line with almost two years of consequent negative answers. After some 18 months of failed private negotiations on February 1, 2008, Microsoft went public with an unsolicited acquisition proposal aimed at Yahoo. The Yahoo Board of Directors revealed that it would closely analyze the bid and then come up with an answer. But the fact of the matter is that Yahoo and Microsoft had been involved in private
negotiations for over 18 months with the Sunnyvale Internet giants saying no after no, and the Redmond company simply not getting the point. By coming out in the open with the takeover bid, Microsoft Chief Executive Officer performed a maneuver known as a bear hug, the classic first step in a hostile acquisition.
"The Yahoo! Board of Directors has carefully reviewed Microsoft's unsolicited proposal with Yahoo!'s management team and financial and legal advisors and has unanimously concluded that the proposal is not in the best interests of Yahoo! and our stockholders," Yahoo stated via a press release. "After careful evaluation, the Board believes that Microsoft's proposal substantially undervalues Yahoo! including our global brand, large worldwide audience, significant recent investments in advertising platforms and future growth prospects, free cash flow and earnings potential, as well as our substantial unconsolidated investments. The Board of Directors is continually evaluating all of its strategic options in the context of the rapidly evolving industry environment and we remain committed to pursuing initiatives that maximize value for all stockholders."
Yahoo's decision seems to be influenced by the small price tag that Microsoft has placed on the Sunnyvale company. Reading between the lines it is clear that Yahoo has not said no, but only asked for more money. Reportedly, Yahoo is looking for Microsoft to pay approximately $60 billion instead of $44.6. The Redmond company has about $21 billion in cash reserves, so it proposed that the acquisition involve both cash and stock, and even in this case Microsoft would be in the position to go into debt.
At this point, Microsoft has of course a few options available. One of them would be to simply give up. Another would be to continue its hostile takeover by initiating a proxy fight to replace the current members of the Yahoo Board of Directors with its own supporters. And yet another would be to sweeten the deal, upping the offer to whatever Yahoo is demanding, making an offer simply impossible to refuse.
"There are now several steps we will both need to take in order to successfully move forward. We are very committed to this. A year ago the Yahoo! management team told us it wasn't really the right time to discuss an acquisition. We believed then in the benefits of combining the two companies and we believe now in those benefits more than ever. That is why we are making it public today so both sets of shareholders, employees and customers can understand the incredible opportunity in a combination of Microsoft and Yahoo," Ballmer stated back on February 1.
Whatever, Microsoft almost immediately came out with an answer to Yahoo's response, and reiterated its full and fair proposal for the marriage of the two companies. At this point in time, the Redmond company has not indicated that it is in any way ready to raise the bid. Yahoo was reportedly looking for no less than $40 per share, or approximately $57 billion. Even with the initial offer of $44.6 billion, payable half in cash and half in stock, Microsoft would have to go into debt in order to get its hands on Yahoo, it is hard to believe that it would accept to pay another $12 billion.
"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," reads an excerpt of Microsoft's statement.
But one thing is clear. Even if Yahoo has closed the door on Microsoft, it has kept the windows open. And this is a clear indication that further negotiation is welcomed. But at the same time, the Sunnyvale Internet giant could swing to a different partnership, the most relevant of which, and one that would hurt Microsoft, would be to outsource its search/ad platforms to Google. On the other hand, Microsoft plus Yahoo, even if both failing on the online and advertising markets compared to Google, would create a worthy opponent for the Mountain View-based search giant.
"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," Microsoft added.
Source: BBC
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