Yahoo! Rejects Microsoft's Offer, Says 'Still An Option'

mikkl666 writes "In response to an open letter from Steve Ballmer, Yahoo! posted a press release claiming that Microsoft's offer 'substantially undervalues Yahoo!' and is therefore not in the best interest of the company. They also bemoan that the letter 'mischaracterizes the nature of our discussions' and that the threat to make an offer directly to the shareholders is 'counterproductive and inconsistent with the stated objective of a friendly transaction'. Nevertheless, they explicitly point out that a transaction with Microsoft is still an option, but only if they are willing to pay 'a price that fully recognizes the value of Yahoo!'"

Comments

crack smoker

[timmarhy]

MS are offering 2x the going share price. what secret pot of gold does yahoo managment think they have that's worth so much?

oh and he must be pretty dense to think "friendly negotiations" are still an option if MS goes to the shareholders directly.

Re:crack smoker

[ozmanjusri]

MS are offering 2x the going share price. what secret pot of gold does yahoo managment think they have that's worth so much?

For a start, it's nowhere near 2x, since the value of MS shares, and hence the offer have dropped since the initial approach.

Microsoft have some interesting times ahead too, and Yahoo shareholders might be considering the risk of turning their Y. shares into MS ones.

Microsoft's stock buybacks, for example, are being used to counteract stock options paid to executive employees. That's drawing down their cash reserve rapidly without generating much growth.

The net number of shares in circulation is roughly the same as in 2005, likewise, MS share price remains around the same $29 mark it averaged in '05 despite $50 billion worth being bought back.

Add to that the failure of their flagship OS on the market and the threats to their Office monopoly, both statutory and in the market, and there's good reason for Yahoo investors to hope for a better suitor.

Re:crack smoker

[Mongoose Disciple]

Microsoft only wants the userbase and the brand, not the products. If Microsoft were to acquire Yahoo!, all their technology (Apache, Oracle, MySQL, PHP, Java, etc running on top of Linux and BSD) would be replaced by Windows servers running IIS. That would make most of the Yahoo! engineers redundant.


Ok, so devil's advocate / tinfoil hat time.

I'm not exactly going to predict this because, come on, Microsoft, but I could sort of see them leaving Yahoo! alone technologically, at least in the short term.

Let's assume there's some viable evil reason for Microsoft to want expertise with PHP/MySQL/etc. in their stable. Microsoft basically cannot grow something like that organically from within. You can't create Microsoft MySQL without essentially admitting there's something wrong with SQL Server, etc.

But you could plausibly buy Yahoo, point to the past migration nightmares of Hotmail, and say that you were wisely letting Yahoo continue with their current technologies due to those experiences.

Re:crack smoker

[dedazo]

That's drawing down their cash reserve rapidly without generating much growth.

That's an interesting soundbyte. Can you explain how stock options paid to executives (which executives?) are actually eating into a $30 billion dollar cash reserve? Those must be some pretty large stock grants.

Add to that the failure of their flagship OS on the market

Looks like someone is connecting all those Vista machines that are not being sold to the internet. I'd like to have me a few of those failures every decade or so.

Re:crack smoker

[DECS]

It's the stock buybacks that are eating up MS' cash reserve. Buying back your own stock is an admission you have nothing better to do with your money that give it back to your shareholders

Remember the words of Michael Dell wrt Apple? Apple isn't buying back its stock, it's buying new campuses, data centers, retail outlets, investing in building products to serve new markets, all of which are selling off the charts.

Microsoft is failing in every consumer electronics arena it enters. It's brightest star is the xbox, which has only made a few million in the last quarter after billions of losses. Sales have now plateaued, forcing the company back to release a new xbox generation and start spending again.

Video Game Consoles 2007: Wii, PS3 and the Death of Microsoftâ(TM)s Xbox 360

Vista might be shipping on some new PCs, but remember that nobody ever questioned Windows' ability to sell. It's a monopoly! Everyone expected MS to sell Vista without any hiccups. It was the consumer business and Windows Media/PlaysForSure, Zune, WinCE/Windows Mobile, Windows Embedded that were all on fire and sustaining deep losses. Microsoft can't sustain mild sales on Vista after spending billions to develop it over the last 6 years and having nothing really to show for all that.

Windows 7 won't show up for another three years, so Vista has to generate cash across that whole time period, not just ship on some new PCs. What's happening though, is that cheap PCs like the EEE and OLPC are running Linux, premium PC sales are getting eaten into by sales of Macs that are outpacing PC sales by 4x, and major vendors are begging to ship XP.

Microsoft's flat stock has been placid for a decade during record earnings boosted by automatic OEM PC sales in a period where the PC-box was the only game in town and there was no effective competition. MS is now being hit by competition at the low end and the high end, while also finding the PC market itself coasting along statically. Sales volumes are shifting toward mobile devices.

MS hasn't successfully delivered mobile devices anyone wants. UMPC was a huge failure, Windows Mobile is a joke. Now its facing the iPhone/iPod Touch and an array of smartphones from other vendors, without any viable game plan.

At some point, you can't say MS will survive on its good looks and personality alone, because its business is facing several points of failures. Yahoo knows that. It also knows that a MS takeover would gut the company and destroy shareholder value.

Why Does Microsoft Really Want Yahoo?

Re:crack smoker

[Anonymous Coward]

Not sure if you realize, but that's his cesspool of unbridled Apple fanboyism and Microsoft hatred, and he's very proud of it. Shameless self-promotion, too.

Re:crack smoker

[jimicus]

Imagine a .NET/Mono based Zimbra. I think you may have hit the nail on the head there.

Microsoft can't afford to lose their monopoly on the desktop because they don't have anything else viable as a business plan capable of generating that kind of revenue. Right now, about the only thing underpinning that monopoly that they have significant control over is Office - and specifically, the combination of Outlook and Exchange.

Now, hold that thought for a minute.

OSS can't be destroyed by Microsoft. But the major sources of funding can be - at least where a buyout would be unlikely to attract the interest of the authorities.

Yahoo is a major source of funding to a lot of projects which are thorns in Microsoft's side and could realistically be threats to their monopoly.

I don't think this is Microsoft trying to take another direction. I think it's more likely to be Microsoft trying to direct the way technology moves by buying out anything which goes against what they do.

Premium Price

[eebra82]

Taken from the open letter:

It has now been more than two months since we made our proposal to acquire Yahoo! at a 62% premium to its closing price on January 31, 2008, the day prior to our announcement. By any fair measure, the large premium we offered in January is even more significant today. We believe that the majority of your shareholders share this assessment, even after reviewing your public disclosures relating to your future prospects. If Microsoft is willing to pay a 62%+ premium, why is this not enough for Yahoo and why are they not making a counter-offer? I am not an expert, but to me, this sounds like extremely personal business.

Re:Premium Price

[10101001 10101001]

Perhaps it's not spelled out well enough with the offer Microsoft is making, but Microsoft really needs (or at least, thinks it really needs) Yahoo!. Microsoft has been working since around 1996 to get into the internet game. They have spent billions of dollars (including all the IE stuff) in a bid to control the internet. And what has that lent them? A very far third place, with them only having any ranking at all because of the vast support from the actually successful divisions of Microsoft.

More to the point, that 62+ "premium" is no such thing. Microsoft isn't out to fund charity cases. It knows full well that Yahoo!'s actual potential worth is a lot more than its current assets. It's precisely this reason that Microsoft has spent so much money up until this point trying to gain a strong footing on the internet, going so far as to buy up a variety of properties along the way to try to compete with the other big players. The fact that Google was capable to grow from basically nothing to something that surpasses' Microsoft's presence should make it clear that either (a) Microsoft is very inept in spending their money or (b) companies like Google and Yahoo! are severely undervalued. I'd imagine it's a strong combination of the two.

In any case, it is in the best interest of shareholders to get the most money out of Microsoft as they can. I'd imagine that'd translate into a premium closer to 100% to 150%, at least, not necessarily because Yahoo! is worth it but because Microsoft is sincerely that desperate--what else would you call it when after ten years of competition, their brightest idea is to try to buy out the competition, not with money earned by fighting the competition, but by using their main cash cow as their own means to compete? The sad part is most investors will likely see the premium in a very narrow minded way, not realizing that Microsoft really doesn't really have any other options, at least in the English speaking world, when it comes to buying up search engines.

The real question is why?

[Whuffo]

What does Yahoo! have that Microsoft prizes so highly? Anything that Yahoo! has done successfully (although not often profitably) has already been "independently reinvented" by Microsoft.

The most likely result of such a purchase would be that they'd try to turn Yahoo! into another Microsoft division and destroy what they were after in the first place.

Seems a strange purchase to be chasing after so hard...

Re:The real question is why?

[Spy der Mann]

You're absolutely right. Part of the value in Yahoo! resides in that they're a Microsoft competitor (in Yahoo! mail, for example).

If that transaction ever takes place, I'll immediately wipe my Microshoo! mail account.

Re:The real question is why?

[Enderandrew]

Yahoo's web-services run on Apache servers, and are often developed with open source software in mind.

I can't imagine that would continue if Microsoft bought them out. And most of the in-house developers would have to learn asp real quick, or be out of jobs.

What's Microsoft gonna do with no cash?

[geoffrobinson]

When Microsoft burns through all of their cash buying Yahoo, they might be in a whole bunch of trouble. No more ability to absorb losses in business areas when trying to break into a market.

So for this reason. I hope Yahoo accepts the deal.

Yahoo trying to force the issue?

[s0litaire]

It sounds to me like Yahoo is trying to force Microsoft to start a "Hostile Takeover" bid. Yahoo probably does not want to be part of the Microsoft hegemony and has probably got it's lawyers on the case. I bet within a few hours of Microsoft announcing it's started hostile takeover bid Yahoo will have lawyers in the American and EU courts blocking the Bid due to Competition/Monopoly rules. And we all know how he court's just love Microsoft's antics.... :D MS will get loads of bad press (share prices drop) Yahoo get good press (there shares prices level out above the original value when this started). then Google comes along and snap up the two of them....... :D:D

Re:crack smoker - if they replace the technology

[Anonymous Coward]

http://reviews.cnet.com/web-mail/msn-hotmail/4864-9236_7-30980702.html?messageID=2512903

If you google "hotmail reliability" you get lots of hits complaining that hotmail lacks reliability. If Microsoft replaces Yahoo's technology, there will probably be massive breakage.

If I were a Yahoo shareholder and Microsoft offered me a substantial premium, I would take it. Yahoo hasn't gone up over the last two years, it has gone down. http://finance.yahoo.com/q/bc?s=YHOO&t=2y At best it could be called stagnant in a volatile kind of way. The price was around twenty bucks and going down until sometime around February when it shot nearly to thirty. To my untrained eye, it looks like the only thing keeping Yahoo's stock price from tanking is the Microsoft offer.

Re:Yahoo is way overpriced

[phantomfive]

They're a large, mature company, not a growth company. Not sure why you think this. The internet is a revolutionary zone, where something completely new could come out at any moment. Furthermore, non-revolutionary revenue, such as advertising and online sales, are growing at a rapid rate. It is reasonable to assume that Yahoo will continue to make money off both of these areas. Even if advertising/Yahoo marketplace revenue doesn't increase significantly, Yahoo could still increase their value significantly with a reorganization and streamlining of their operations. Some of their departments have a separate manager for each programmer. That is horribly inefficient.

Google is overpriced too, but not as badly. Their P/E is around $36, while their revenue is flat or declining slightly. The fundamental problem with Google is that all those free services they give away don't make them any money. They've never found a second big moneymaking product. They don't need to find a second big moneymaking product. All it takes is one. Internet advertising spending has been going up around 30% each year, a trend that's not ending any time soon, and Google's profits will rise right along with it. Those free services don't really cost that much, and have potential to be an additional revenue source (from advertising) if they become popular.

Re:Hotmail wasn't migrated sooner because...

[Mongoose Disciple]

Not only because of Microsoft's belief in the "eat your own dog food" principle, but also because Microsoft had made public statements saying it was going to migrate hotmail to Microsoft operating system and web server software, it is clear that Microsoft really wanted that migration to work, but it still took over five years and three versions of Microsoft's server software.


You know, for the first time you've made me wonder if Microsoft actually did make the long-term smart move by migrating Hotmail.

I mean, from the perspective of Hotmail, it was a disaster, yet... Windows Server got a lot better during that time frame, and I have to wonder how much of that was driven by trying to do projects like Hotmail on it and paying attention to the ways in which they spectacularly failed. If you take the position that at core they're an OS company and it's worth sacrificing a side business to improve their OS...

It's probably too soon to say, but if you had asked me ten years ago I would have predicted that Linux would have crushed Windows even more out of the server market by now than has been the case. If MS is able to get any of the server market share back over the next few years, maybe it was all worth it.