Microsoft walks away from Yahoo deal
YAHOO BID PULLED : TAKEOVER TALKS END WITH NO DEAL
By Pete Carey and Elise Ackerman
Mercury News
Article Launched: 05/04/2008 01:32:37 AM PDT
Microsoft Chief Executive Steve Ballmer vowed last week not to pay "a penny" more than he thought Yahoo was worth, and he kept his word Saturday.
After intense weekend negotiations stalemated on price, with the Redmond, Wash., company raising its bid by $5 billion and Yahoo demanding twice that, he walked away from what would have been one of the biggest technology deals ever.
"Clearly a deal is not to be," Ballmer wrote in a letter to Yahoo CEO Jerry Yang.
Yang responded in a statement on Yahoo's Web site: "With the distraction of Microsoft's unsolicited proposal now behind us, we will be able to focus all of our energies on executing the most important transition in our history so that we can maximize our potential to the benefit of our shareholders, employees, partners and users."
The decision sounded genuine and final, and Yahoo's board chairman expressed confidence in Yahoo's stand, but clearly talks could resume if Yahoo's shareholders demand it.
Several analysts expressed surprise at the turn of events.
"It seems like an amazing turn in this whole saga," said Greg Sterling of Sterling Market Intelligence. "Until very, very recently, it appeared this was all but a done deal."
But David Garrity of Dinosaur Research said it appeared to him that Microsoft was acting rationally. "I think the poker was getting to be high-stakes and I think Microsoft did the right thing for the time being by walking away."
But it is by no means certain that this deal is dead. Microsoft certainly can come back with an offer later, especially if Yahoo's stock price falls. Even though he withdrew the offer, Ballmer continued Saturday to emphasize that he thought the deal was best for Yahoo and the Sunnyvale company's shareholders.
"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," Ballmer wrote to Yang.
As Sterling put it, "There are enough twists and turns to this to make me think this is not 100 percent over."
Now, investors will be watching to see how Yahoo's stock performs Monday. It had reached $28.67 a share Friday in expectation of a deal. But it was trading slightly over $19 a share Jan. 31, the day before the Microsoft offer.
Yahoo is taking a calculated risk that shareholders will stick with it in the absence of a deal that originally had offered a 62 percent premium on its share price, and a 70 percent premium with Microsoft's latest offer.
But Chairman Roy Bostock said in a statement that Yahoo's board and managers "have been steadfast in our belief that Microsoft's offer undervalued the company and we are pleased that so many of our shareholders joined us in expressing that view."
Some analysts weren't impressed.
"The board is required to look out for shareholders' interest," observed Martin Pyykkonen of Global Crown Capital. "By letting this slip away, they are not looking out for shareholder interest. . . . I would like to think that Yahoo can survive independently but they are up against a lot of challenges," Pyykkonen said, adding that "no valuation you can come up with" justifies Yahoo's demand for $37 a share.
"I would not want to be a board member of Yahoo and turn down a significant premium offer," he said.
Garrity, of Dinosaur Research, said he thinks Yang "is going to have a number of questions from a wide range of shareholders to respond to. We are in a situation where expectations became divorced from reality."
Ballmer went after Yahoo because he felt that Microsoft, a distant third in online advertising revenue, needed a partner to compete with Google, which dominates online advertising revenue.
"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," Ballmer wrote to Yang.
The two sides engaged in intensive negotiations in the days leading up to Saturday's announcement, which occurred a week after the deadline Microsoft had set for Yahoo to respond to its offer.
On Tuesday, Yang and Bostock called Ballmer twice, according to a source familiar with Microsoft's thinking, and told him not to pay attention to the $40-a-share price Yahoo's bankers had earlier discussed with Microsoft.
"That's just the bankers," they told him, according to this source. "Don't walk away. Don't go hostile."
A day later, executives for the two companies met in Palo Alto, and Yang asked for a bid of $38 a share.
On Saturday morning, the source familiar with Microsoft's thinking said, Yang and Yahoo co-founder David Filo flew to Seattle to meet with Ballmer and Microsoft executive Kevin Johnson. Ballmer offered the two $33 a share. The Yahoo board was willing to take $37 a share, Yang and Filo said, according to the source, but the two co-founders wanted more.
A source familiar with Yahoo's thinking said that sounded like a mischaracterization of the Saturday meeting. "Jerry and Filo absolutely had the full backing of the board," the source said.
Both sides agree the meeting ended inconclusively, and Yang and Filo flew back to the Bay Area.
At 4 p.m., Ballmer called Yang and withdrew the offer.
"I feel that our discussions this week have been particularly useful," Ballmer would write Yang, "providing me for the first time with real clarity on what is and is not possible."
Ballmer also indicated that he did not feel a battle for control of Yahoo's board, or a so-called proxy battle, made sense.
"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," he wrote.
Another reason Microsoft decided not to pursue such an approach, he said, was because Yahoo indicated it would respond to such a "hostile" bid by outsourcing some advertising sales to Google. Ballmer was especially critical of that, saying it would make a deal for Yahoo "undesirable" by undermining its viability and creating regulatory and legal problems.
The announcement ends weeks of standoff that began with Microsoft's offer of $44.6 billion, or $31 a share, and Yahoo insisting it was worth far more.
Each company has been showing signs of age as the newer, nimbler Google dominates the lucrative business for Internet search advertising and begins to move into Yahoo's territory of Internet display ads.
After years in denial, insiders say, Microsoft realized it had to catch up with Google before the Mountain View company became the next Microsoft - so entrenched that no competitor could dislodge it.
YAHOO BID PULLED : TAKEOVER TALKS END WITH NO DEAL
By Pete Carey and Elise Ackerman
Mercury News
Article Launched: 05/04/2008 01:32:37 AM PDT
Microsoft Chief Executive Steve Ballmer vowed last week not to pay "a penny" more than he thought Yahoo was worth, and he kept his word Saturday.
After intense weekend negotiations stalemated on price, with the Redmond, Wash., company raising its bid by $5 billion and Yahoo demanding twice that, he walked away from what would have been one of the biggest technology deals ever.
"Clearly a deal is not to be," Ballmer wrote in a letter to Yahoo CEO Jerry Yang.
Yang responded in a statement on Yahoo's Web site: "With the distraction of Microsoft's unsolicited proposal now behind us, we will be able to focus all of our energies on executing the most important transition in our history so that we can maximize our potential to the benefit of our shareholders, employees, partners and users."
The decision sounded genuine and final, and Yahoo's board chairman expressed confidence in Yahoo's stand, but clearly talks could resume if Yahoo's shareholders demand it.
Several analysts expressed surprise at the turn of events.
"It seems like an amazing turn in this whole saga," said Greg Sterling of Sterling Market Intelligence. "Until very, very recently, it appeared this was all but a done deal."
But David Garrity of Dinosaur Research said it appeared to him that Microsoft was acting rationally. "I think the poker was getting to be high-stakes and I think Microsoft did the right thing for the time being by walking away."
But it is by no means certain that this deal is dead. Microsoft certainly can come back with an offer later, especially if Yahoo's stock price falls. Even though he withdrew the offer, Ballmer continued Saturday to emphasize that he thought the deal was best for Yahoo and the Sunnyvale company's shareholders.
"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," Ballmer wrote to Yang.
As Sterling put it, "There are enough twists and turns to this to make me think this is not 100 percent over."
Now, investors will be watching to see how Yahoo's stock performs Monday. It had reached $28.67 a share Friday in expectation of a deal. But it was trading slightly over $19 a share Jan. 31, the day before the Microsoft offer.
Yahoo is taking a calculated risk that shareholders will stick with it in the absence of a deal that originally had offered a 62 percent premium on its share price, and a 70 percent premium with Microsoft's latest offer.
But Chairman Roy Bostock said in a statement that Yahoo's board and managers "have been steadfast in our belief that Microsoft's offer undervalued the company and we are pleased that so many of our shareholders joined us in expressing that view."
Some analysts weren't impressed.
"The board is required to look out for shareholders' interest," observed Martin Pyykkonen of Global Crown Capital. "By letting this slip away, they are not looking out for shareholder interest. . . . I would like to think that Yahoo can survive independently but they are up against a lot of challenges," Pyykkonen said, adding that "no valuation you can come up with" justifies Yahoo's demand for $37 a share.
"I would not want to be a board member of Yahoo and turn down a significant premium offer," he said.
Garrity, of Dinosaur Research, said he thinks Yang "is going to have a number of questions from a wide range of shareholders to respond to. We are in a situation where expectations became divorced from reality."
Ballmer went after Yahoo because he felt that Microsoft, a distant third in online advertising revenue, needed a partner to compete with Google, which dominates online advertising revenue.
"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," Ballmer wrote to Yang.
The two sides engaged in intensive negotiations in the days leading up to Saturday's announcement, which occurred a week after the deadline Microsoft had set for Yahoo to respond to its offer.
On Tuesday, Yang and Bostock called Ballmer twice, according to a source familiar with Microsoft's thinking, and told him not to pay attention to the $40-a-share price Yahoo's bankers had earlier discussed with Microsoft.
"That's just the bankers," they told him, according to this source. "Don't walk away. Don't go hostile."
A day later, executives for the two companies met in Palo Alto, and Yang asked for a bid of $38 a share.
On Saturday morning, the source familiar with Microsoft's thinking said, Yang and Yahoo co-founder David Filo flew to Seattle to meet with Ballmer and Microsoft executive Kevin Johnson. Ballmer offered the two $33 a share. The Yahoo board was willing to take $37 a share, Yang and Filo said, according to the source, but the two co-founders wanted more.
A source familiar with Yahoo's thinking said that sounded like a mischaracterization of the Saturday meeting. "Jerry and Filo absolutely had the full backing of the board," the source said.
Both sides agree the meeting ended inconclusively, and Yang and Filo flew back to the Bay Area.
At 4 p.m., Ballmer called Yang and withdrew the offer.
"I feel that our discussions this week have been particularly useful," Ballmer would write Yang, "providing me for the first time with real clarity on what is and is not possible."
Ballmer also indicated that he did not feel a battle for control of Yahoo's board, or a so-called proxy battle, made sense.
"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," he wrote.
Another reason Microsoft decided not to pursue such an approach, he said, was because Yahoo indicated it would respond to such a "hostile" bid by outsourcing some advertising sales to Google. Ballmer was especially critical of that, saying it would make a deal for Yahoo "undesirable" by undermining its viability and creating regulatory and legal problems.
The announcement ends weeks of standoff that began with Microsoft's offer of $44.6 billion, or $31 a share, and Yahoo insisting it was worth far more.
Each company has been showing signs of age as the newer, nimbler Google dominates the lucrative business for Internet search advertising and begins to move into Yahoo's territory of Internet display ads.
After years in denial, insiders say, Microsoft realized it had to catch up with Google before the Mountain View company became the next Microsoft - so entrenched that no competitor could dislodge it.
