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Microsoft Withdraws Yahoo Takeover Offer

Posted by timothy on from the brinksmanship-in-the-pac-no-west dept.

mksmac writes "According to the KOMO TV Website, Microsoft has withdrawn its bid for Yahoo after presenting them with an increased offer that was subsequently declined by Yahoo. Frankly, this seems like a smarter decision on Microsoft's part, but I'd like to hear how other people feel about the deal. Should Microsoft have walked away, pressured Yahoo via a hostile takeover or sweetened the pot until Yahoo gave in?" For those who prefer it, the NYT also has coverage, and the story is also at news.com, among many others. I like the Beeb's version as well. And for the Microsoft-centric explanation of why the courtship is over, see Steve Balmer's letter to Jerry Yang.

35 of 336 comments (clear)

  1. My question is... by kithrup · · Score: 5, Interesting

    This doesn't seem to have been a particularly well-handled, or deeply-sincere, attempt by Microsoft... so what were they really doing?

    This is a sincere question; I've seen a lot of acquisitions (and even hostile takeovers) happen, and this seemed lacking in many ways. Maybe I've missed some of the machinations; maybe not.

    1. Re:My question is... by j0nb0y · · Score: 5, Informative

      Where did you get that idea?

      The general consensus on the street seemed to be that Microsoft was offering *too much* money... which is why Microsoft stock dropped when the offer was first announced...

      I'm not a big fan of Microsoft, but it really looked to me like they wanted Yahoo. It was Yahoo's executives who didn't want the deal to go through.

      Maybe I just watch too much CNBC.

      --
      If you had super powers, would you use them for good, or for awesome?
    2. Re:My question is... by NMerriam · · Score: 5, Insightful

      I think the deal was sincere, that basically MS was genuinely trying to buy Yahoo as a way to get a lot more presence online and try to slow down Google. I suspect they believed most Yahoo execs and stockholders would have been excited at the prospect of getting so much money, and never anticipated Jerry Yang really being able to get so much of the board to think it was a bad idea.

      Without an alternate reality time machine, we'll never know if it was really bad or good. Yahoo is not a leader in much of anything at the moment, but I don't think it's crazy for such a company to believe their best days might yet be ahead of them. It's not like they're AltaVista or Ask.com, they have quite a bit of clout and a lot of popular services despite Google's dominance.

      MS was certainly not getting much of anywhere with MSN or whatever they're trying to push this week. With their new "Live!" stuff being integrated into Windows and Office, they finally have a decently compelling online product to try and spin off of, but they don't have anywhere to spin people *to*, in a way that would keep them in an all-MS ecosystem. Yahoo could give them all that in one deal.

      --
      Recursive: Adj. See Recursive.
    3. Re:My question is... by smittyoneeach · · Score: 5, Funny

      which is why Microsoft stock dropped when the offer was first announced...
      Very Interesting Statement That Almost
      Ventured Into Suspicious Territory And
      Vital, Insightful Stock Threat Analysis.
      --
      Get thee glass eyes, and, like a scurvy politician, seem to see things thou dost not.--King Lear
    4. Re:My question is... by Anonymous Coward · · Score: 5, Interesting

      Microsoft is in the process of buying back stock with their oh so massive capital. They just got to spend months doing this with a defalted stock price because of the buyout offer. Now that the offer is off the table, the stock price should start to go back up.

    5. Re:My question is... by Serapth · · Score: 4, Insightful

      No machinations, at least nothing subtle. Basically MS is walking from the deal because Yahoo threatened to do a long term alliance for search revenue with google, which would have completely ruined any possible value for Microsoft.

      The audience for the letter wasnt Wang though, it was the shareholders. Lots of people in the Yahoo camp are pissed they didnt already accept the deal. Lots more are going to be pissed they turned down 33$ a share. Even more are going to be pissed when the stock price plummets on Monday, as its been going up on the assumption that the acquisition would happen. I wouldnt be suprised to see a single day 6 - 8 $ a share drop. That will lead to even more shareholder lawsuits and I don't doubt that in the near future Wang will be out on his ass, as his position was hanging by a thread already.

      If this happens, MS could actually swoop back in and buy Yahoo for a discount ( see BEA/Oracle for example ) in the future. Otherwise Microsoft may have managed to damage a rival by causing such chaos and internal strife.

      Personally as someone who holds MSFT shares and watched them drop 3$ the day this (horrible!!!) deal was announced, I say THANK GOD! My only prayer is that this is finally the thing that gets Balmer ousted. I can only pray.

    6. Re:My question is... by 3HackBug77 · · Score: 5, Insightful

      MS and Google don't just sell ad space on their own pages, they both handle advertisement on a variety of pages. That's how they make money and generate traffic. Yahoo does this as well, and actually have the highest traffic generation worldwide still today, so it makes sense that MS would try to acquire Yahoo to try to compete better with Google. I do agree that MS should try to stick what they are good at, but the fact is that almost everything is shifting online and MS needs to stay competitive.

    7. Re:My question is... by CodeBuster · · Score: 5, Interesting

      It wasn't just the Yahoo executives who weren't interested in the deal. There was no way that Microsoft could win a proxy fight for Yahoo at anything approaching a reasonable price. The founders and various other individuals (including the board) owned about 34% or so of the outstanding shares and there was at least 25% more owned by individual investors (who rarely bother to vote in proxy fights which means that the board would get to vote those shares too). So the board and the individuals opposing Microsoft controlled at least 60% or so of the outstanding shares, making any hostile takeover direct shareholder tender offer a non-starter (unless Microsoft offered an insane price which they obviously weren't going to do). Microsoft did the only thing that they could do, they made the prudent decision and walked away.

    8. Re:My question is... by CodeBuster · · Score: 4, Informative

      I fail to see why MS would want to compete with Google so much Google is earning economic rent through their strong franchise business in search and online advertising. There is no way that they are not going to attract competitors. Microsoft is in the technology business too, so it is difficult to explain to your shareholders why you are not trying to capture a piece of that lucrative market for yourself, especially when you seem well placed to compete for a share of the spoils. Microsoft is trying to earn the best possible return for their shareholders and that means competing for a share of the market in which Google is earning strong profits going forward.
    9. Re:My question is... by 99BottlesOfBeerInMyF · · Score: 4, Interesting

      From appearances Yahoo seems to be a terrible acquisition target; it is large and healthy enough to be very expensive and burdensome, but not growing rapidly or successful enough to be a major asset to someone like Microsoft.

      Yahoo combined with MS's own Web and internet services would have been enough to give MS majority market share in several new markets. More importantly, many of yahoo's services are pretty decent and doing quite well. For some other company they might not be a good acquisition, but for a company like MS that has several monopolies and is not at all shy about illegally leveraging them, Yahoo makes a lot of sense. When you have 25% market share, breaking compatibility with everyone else hurts you more than them. When you have 52% and it is growing because it is tied to Windows and MS Office and IE, breaking compatability with everyone else hurts them more.

      One theory I've heard floated is that they didn't actually want Yahoo, but by making a show of trying to acquire it hoped to bait Google into buying Yahoo on the basis of denying it to Microsoft, with the net result of burning a chunk of Google's resources and bogging them down with the process of absorbing something that large.

      It sounds unlikely to me. If that was their plan, it probably backfired. All it seems to have done is to get Google and Yahoo talking and making technology partnerships.

    10. Re:My question is... by hairyfeet · · Score: 5, Interesting

      Actually I believe that MSFT wanted yahoo because Yahoo mail is the number one web mail,followed by Windows Live mail. That combination would not only give them a big chunk of the web mail but tons of new data to mine. I am personally glad they quit as I would have hated to see my Yahoo mail end up some nasty Hotmail copy. But that is my take on it,YMMV.

      --
      ACs don't waste your time replying, your posts are never seen by me.
    11. Re:My question is... by smittyoneeach · · Score: 4, Interesting

      cheaper to just run vista
      No, cheaper is to keep an XP partition around for those godawful proprietary formats and websites that require IE and smart-card readers for which no liberated alternative exists.
      The other 90% of the time, run something that doesn't draw vacuum.

      cheaper to just run vista
      ...is like saying it's cheaper to keep smoking cigarettes than go through withdrawal. After all, in the long run, we're all dead, no?

      cheaper to just run vista
      I won't lie--when there is printing to do, Redmond products are amply suited to the task.
      Of course, in a greener world, we're printing less, but let's face it: quality printing (booklets and stuff) is not exactly a strong suit of Free Software. Which is kind of ironic, as text handling was one of the strong suits of the early Unix.
      --
      Get thee glass eyes, and, like a scurvy politician, seem to see things thou dost not.--King Lear
    12. Re:My question is... by Associate · · Score: 4, Funny

      You could have always dumped the account and filled it with solicited SPAM telling Microsoft you were a 45 year old gay midget into tranny foot fetish porn with interests in RC cars, the Book of Mormon, and central Asian camel farming.

      --
      Someone hates these cans.
    13. Re:My question is... by somersault · · Score: 4, Funny

      FUD, monopolism, singlehandedly driving the computer-security business, advertising, creating 'standards'... stuff like that

      --
      which is totally what she said
    14. Re:My question is... by supabeast! · · Score: 4, Funny

      This doesn't seem to have been a particularly well-handled, or deeply-sincere, attempt by Microsoft... so what were they really doing?

      Screwing up. Microsoft has a history of big failures, and the bigger the company gets, the bigger the failures. Putting Uncle Fester in charge certainly hasn't helped. One of these days the board will realize that the Xbox team is the only one left with a fucking clue and put them in charge.
    15. Re:My question is... by NMerriam · · Score: 4, Interesting

      I wasn't even talking about Android, since it doesn't really exist yet in terms of the market (though certainly MS is keeping an eye on it). Google and Apple have been fairly chummy for a couple of years now -- look closely and you'll notice that the iPhone ships with only Apple and Google apps, nobody else was even invited to the party. Google has shown itself willing to make custom versions of their stuff for Apple, and Apple has shown it is more than happy to let Google handle providing complex and fundamental services rather than reinvent the wheel themselves. Apple has also done little things like add support for Google Talk to iChat, and it's worth noting that Safari is the only major web browser on any platform that *only* has one search engine built-in. When the Google CEO joined Apple's board, he basically said that Google specializes in running massive back ends and sorting through data, and Apple specializes in user-centric front ends and hardware, and they're a logical match.

      No doubt there's also a LOT of "the enemy of my enemy is my friend" going on at the strategic level.

      Since Google isn't profiting directly off Android, I don't think there's much direct competition between the companies in the mobile space. Google wants traffic to their servers, and is setting up Android as a free way for companies to build more network-enabled software even on the cheapest phones (a 'rising tide lifts all boats' effort towards the mobile space). Ultimately it doesn't much matter to Google if traffic to their servers is coming from an Android device or an iPhone device, so long as the traffic isn't going to MSYahoo. As long as Google stays out of the phone hardware business, I suspect Apple won't see them as a direct competitor, they'll just be another generic software platform provider while Apple provides an integrated hardware/software solution.

      --
      Recursive: Adj. See Recursive.
    16. Re:My question is... by lilfields · · Score: 4, Interesting

      Microsoft's business is actually doing quite well, have you looked at their profits lately? Their revenue stream? Microsoft needs Yahoo for internet advertising, because that part of their business has been a money pit. Just because you have a bias against Microsoft (obviously), doesn't mean that it's doing horrible. Also, Microsoft withdrew the bid in a formal letter, that does in fact mean they withdrew the offer; previously Yahoo had rejected it but I didn't see their stock tank...but now their stock is about to plummet.

      What the board and many here don't seem to understand is that Yahoo's stock is greatly overvalued even in the low 20s...it had a negative/flat growth rate with a forward looking price to earnings well above ~50...Google, which as a HUGE growth rate only has a forward looking price to earnings of ~32. Yahoo could sign a deal with Google and increase profits slightly, but they would have just wasted billions on their new advertising platform "Amazon", and their stock would still be overvalued. The fact that Yahoo didn't take that bid shows how poorly managed the company is. There are going to be a lot of shareholder lawsuits tomorrow morning as the stock drops 20-30%. At this point I wouldn't be surprised to see Microsoft just stepping in to buy shares and build a position to 5% stake, which is the legal limit before you have to file with the SEC and publicly disclose that you massive stake. At that point they would probably do a proxy battle and would win...getting Yahoo at an even cheaper price. Yahoo's management really is horrible, Ballmer (like him or not) is making a brilliant move. He tried to be generous with a massive premium, now he's just going to give them the traditional Microsoft shaft.

  2. I'm torn by JanneM · · Score: 5, Insightful

    On one hand, I'm of course happy I can stay with Flickr. On the other, it would have been a great deal of fun seeing Microsoft get bogged down and distracted for a good few years as it struggled to digest Yahoo (and, likely, killing any value of that company in the process).

    --
    Trust the Computer. The Computer is your friend.
    1. Re:I'm torn by Anonymous Coward · · Score: 5, Interesting

      Well, as an employee, I saw it as a win-win, assuming I could find another job. Either Microsoft would turn over a new leaf and actually make the combo work well. Or it would be the death of Microsoft.

      And, unlike a lot of the folks there, I'm fairly confident that I'd be able to find a new job the second it became official.

      It's one of those dangerous ideas that you really need to be a nerd and know microsofties, googlers, and yahoos in order to understand exactly how stupid of an idea it really is.

    2. Re:I'm torn by div_2n · · Score: 4, Insightful

      You kind of left out a party in your "win-win" analysis. How about customers? I have one very real group of customers in mind--Zimbra customers.

      What are the odds Microsoft would have allowed it to flourish? I'm betting that, at a minimum, they would have jacked the price up until it was no longer as cost effective over Exchange.

    3. Re:I'm torn by Foofoobar · · Score: 4, Interesting

      Actually, I've been part of two Ziwbra installs at companies now and both were due to constant problews with Exchange. After switching to Zimbra, all users (mac, Linux and Windows) were able to interoperate smoothly and since the server was on Linux, we had no downtime. The stability in Zimbra and cross platform capabilities puts the original product to shame.

      --
      This is my sig. There are many like it but this one is mine.
  3. No future. by owlnation · · Score: 4, Funny

    Bad day to be a Yahoo employee, bad year really...

    Yahoo's got to the point where not even MS wants them. They're doomed. That's not really a bad thing. Yahoo is evil after all.

    AOL called, they want their business plan back.

    1. Re:No future. by rsmith-mac · · Score: 5, Insightful

      Frankly the general idea is correct, the reasoning is not. MS (publicly) doesn't want Yahoo because they effectively loaded themselves with a poison pill to keep Microsoft from taking them over. They've done things like partnering with Google and giving executives very large golden parachutes that make it very unpalpable if not outright hard for Microsoft to acquire the company and not end up with a mess and/or FTC troubles.

      It is bad news for Yahoo employees and shareholders though. The company really is going nowhere, it's going to limp on for years like AOL or get picked up for pennies by Google if it could be cleared by the FTC. The best deal for the shareholders would have been to approve a buyout, but Yahoo's poison pill plan did a pretty good job of stopping that.

  4. MISSION ACCOMPLISHED! by Jeremiah+Cornelius · · Score: 4, Interesting

    Competitive Value of Yahoo! Demolished!

    Ballmer creates AOL Redux.

    --
    "Flyin' in just a sweet place,
    Never been known to fail..."
  5. Cant say I didnt expect this. by phat_goat · · Score: 5, Insightful

    After Google and Yahoo announced their advertising "experiment", i'm sure that was what killed it for Microsoft, i'm sure a few chairs were sent across meeting rooms in Redmond too.

    1. Re:Cant say I didnt expect this. by Strudelkugel · · Score: 4, Insightful
      Actually I doubt Ballmer threw any chairs for this one. I'm no fan of him as Microsoft CEO; I have a hard time understanding how he has managed to stay there this long given the lackluster (with the exception of the enterprise platform) product performance. That said, he is supposed to be a good poker player, and this offer, then rejection of the Yahoo counter-offer has something of a poker feel to it.

      Think of what happens now: The shareholders of Yahoo are going to go ballistic. Yahoo management just left $47.5 billion on the table! (The total at $33 / share for Yahoo.) This has to be the dumbest corporate move since Time Warner buying AOL. My guess is that the Yahoo board is going to have to fend off a shareholder insurrection the likes of which we have not seen for a while, which will serve as a huge distraction for Yahoo. I don't think Google can get too close to Yahoo, because the DOJ (let alone the EU) will not like the concentration of search advertising in the hands of one company.

      Microsoft let out that they allocated $1.5 billion for employee retention. If you are a good performer at Yahoo, you now have three choices:

      • Stay at Yahoo
      • Go to Google
      • Go to Microsoft

      If you stay at Yahoo, you get to work for a company were top management is going to have a major distraction on their hands. The people who were going to jump ship to Google if there was a takeover are going to leave, and a few people who might not have thought of it at all are now going to explore going to Microsoft.

      In the end, Yahoo fizzles, and is less competition to Microsoft. Not a bad result from Ballmer's point of view. Watch the stocks on Monday. Yahoo will likely plunge, Microsoft will more than likely be up a few dollars. Over time, Microsoft and Google will pick apart Yahoo. Then Ballmer will have positioned Microsoft to be #2 in the business, which is good enough for Jack Welch (Former CEO of GE), who I believe Ballmer admires. This is probably the smartest thing Ballmer has done during his tenure as CEO.

      --
      Imagine how much harder physics would be if electrons had feelings! -Feynman, maybe
    2. Re:Cant say I didnt expect this. by kesuki · · Score: 5, Insightful

      I still remember when yahoo was worth $500 a share... sure they've had 2 2:1 stock splits since then, and plus the internet bubble collapsed int he interim, but still at yahoo's Highest valuation, adjusted for stock splits they would be worth $125 a share, or 180 billion dollars... true, it was a bubble, but if the company was at one point worth over 378% more than what was offered... and the execs for whatever reason believe that they are currently undervalued by the street... well... they are, the stock market is way down, on concerns over the economy, and yahoo is worth way more than 47.5 billion dollars, when you consider that every year the technology they rely on is getting cheaper and better, while the over head costs are going down, and demand for their services are rising...

      really the stock market DOSE NOT currently value yahoo for where technology is going, because for all the computers they use to keep track of stocks, they don't fundamentally understand how to value a company that will halve it's operating costs ever ten years, so long as certain technologies get better every year...

      nobody knows exactly when or how technology prices will bottom out, because even if we no longer can shrink the size of transistors etc, the economy of scales might still drive prices lower, as they already have for microprocessors... just 5 years ago, a viable single core server processor cost $1,000 but today, a quad core server processor costs $230-$300 because of economies of scale for both multi-core consumer and server products...

      honestly in another 5 years, when a 16-core mutli-processor sells for $49.99 and uses the same electricity of today's quad core processor, do you really think that then, in that far away future land that yahoo or google will have fewer customers than they do today? they will have more, and the cost per customer will be lower, and the cost of advertising higher.

      Even if google or some other competitor is ahead of yahoo, yahoo will still have an enormous customer base... and technology keeps kgetting better.

      --
      https://www.gnu.org/philosophy/free-sw.html
  6. Savvy move by MillenneumMan · · Score: 5, Interesting

    Yahoo's market cap takes a hit, shareholders initiate lawsuits against the Yahoo board. Microsoft may be able to swoop in next quarter and accomplish this via hostile takeover for significantly less. Surprised Microsoft didn't do this sooner

    1. Re:Savvy move by tsotha · · Score: 4, Insightful

      That's what I've been thinking. If I were a Yahoo shareholder right now I'd be very, very pissed off. The board of Yahoo was really looking out for itself here and not for the shareholders - no way no how Yahoo was even worth what Microsoft offered originally.

  7. Re:Credibility lost? by Linus+the+Turbonerd · · Score: 5, Funny

    Well, losing credibility generally implies that it was present in the first place, so...

  8. MS, you lucked out by Verity_Crux · · Score: 5, Insightful

    Honestly, do you possibly think you could recover that much money with goods from Yahoo? This crazy idea to buy Yahoo was a combination of two things: ignoramus upper management and pressure from Google. Too many businessmen only understand how to make money from advertising. Who put them in charge? You need to weed them out and put in upper management that understand the beauties in your software that is currently making you money. Let Google make the money in the internet. Quit worrying about them or your silly MSN or other sundry internet ventures.

    Instead, you should invest that money in your operating system, the APIs for your OS, the tools to make it easy to create applications for your OS. Make a serious real time OS. Unify your OSs. Architect them so that you can crank them out faster and safer. Make your driver model easy to understand and code for. DirectX seems to do good for you, but you had better keep up on it. The same is true of C#. Give these Java folks some stiff competition in language, libraries, and tools. Make the speed of your CLR rock. Make it vectorize, use the SIMD, automatically use multiple cores, etc.

    In summary, make businesses want to run on your platform, develop for your platform. You want every office to use your software tools. It won't matter if every office uses your search engine when they go to get info off the internet. That's not the most effective way for you -- a company with an already vast installation base -- to make money.

  9. ...and Ballmer wrote as such. by game+kid · · Score: 5, Informative

    ...

    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.

    ...

    No need to speculate on what Ballmer has all but confirmed. :)
    --
    You can hold down the "B" button for continuous firing.
  10. It's a true shame by theolein · · Score: 4, Insightful

    I personally am kind of sad that Microsoft didn't buy Yahoo. I had a kind of deja vue about the whole thing which I couldn't place, and it only occured to me yesterday: Time-AOL.

    When AOL was so bloated with cash they didn't know what to do with it, they bought time. It was a marriage made in hell. Time didn't have anything that AOL needed and AOL couldn't offer Time anything. When the dot bomb crash happened, AOL lost value quickly to eventually become the struggling company today that only exists because of a legacy of users who never switched to better offers.

    I had the kind of feeling that that would have happened to Microsoft as well had they bought Yahoo. They would have parted with almost half their operating capital for something that would have given them nothing. Given the fact that Microsoft is not exactly rapidly gaining marketshare at the moment, it could have hurt them badly.

  11. Re:Credibility lost? by Anonymous Coward · · Score: 5, Insightful

    Newsflash: the media wouldn't give a fuck about OOXML no matter what Microsoft did. Another newsflash: Microsoft stopped being spelled with a capital S over twenty years ago.

  12. Re:Credibility lost? by Kijori · · Score: 4, Insightful

    Do you really think Microsoft needs the free press? They're a huge company, with a huge presence, and they have the best advertising around: every time you go to buy a program, a game, a DVD, a CD, a peripheral or really anything to do with a computer the box announces that Microsoft Windows is either required or recommended.