Putting an end to months of speculation, on Friday last week, Microsoft
withdrew its final $47.5 billion offer to acquire Yahoo! The conclusion
of its rather long-drawn chase to acquire Yahoo! comes as a surprise to
many, as it was only Saturday that we heard of a new ray of hope for a
marriage between the two biggies following speculation of Microsoft
sweetening its takeover bid, which the company obviously did.
Eliciting the reasons that triggered its final decision, Microsoft
said that despite best efforts and a roughly $5 billion bid to acquire
Yahoo!, the company did not move forward and accept the offer.
Microsoft said they believe that the economics demanded by Yahoo! did
not make sense for them after all, hence pulled back.
Below are excerpts from the letter that Microsoft CEO Steve Ballmer
wrote to Yahoo! CEO and Chief Jerry Yang regarding closure of the deal
that was not meant to be:
"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."
As regards Yahoo!'s plan to respond to Microsoft's bid in ways
other than perceived, Ballmer wrote, "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!."
