Microsoft Withdraws Yahoo Bid; Walks Away From Deal

http://www.techcrunch.com/2008/05/03/breaking-microsoft-walks/

by raghus • 18 years ago

78 57 18 years ago

rms3• 18 years ago

Ballmer says clearly in the letter that they will not be pursuing a proxy nomination battle. Do you think he is telling the truth?

jorgeortiz85• 18 years ago

His explanations seem credible. There are a lot of "poison pills" that Yahoo can swallow between the start of a proxy battle and the installment of MSFT-friendly management.

gscott2• 18 years ago

I believe Microsoft just couldn't afford Yahoo because of Vista. If Vista sold well and there was mass adoption then MS would have had the free cash flow to aquire Yahoo without having to borrow. If Yahoo next year is at $20 a share, Microsoft may try again. (edited to cut out unimportant sections)

byrneseyeview• 18 years ago

"They can't pull out all of there investments right now, it would devastate the stock market."

Really? Their balance sheet doesn't show a huge amount of long-term investments. And yesterday, $1.9 billion worth of Microsoft stock alone changed hands -- it would be very hard for them to upset the market selling gradually. In addition, they're generating at least $4 billion in operating cash flow each quarter, which would support a lot of debt at a low rating.

Finally, they could issue stock. Free cash flow is not the issue.

gscott2• 18 years ago

If Microsoft issues more stock it would dilute it's shares which causes some people to pull out of the stock further sending it's price down. I really don't believe they would wipe out hundreds of millions / billions of shareholders value for Yahoo.

You just can't take billions of dollars in investments out without proper planning. Just because they can cash out doesn't mean that is a great idea. They would have nothing in reserves. One of the founders of Microsoft, Paul Allen was really big on having reserves that they would not spend and I would be suprised if that attitude didn't still prevail today.

Yahoo doesn't throw of enough cash either. Microsoft would have to fire half of Yahoo's employees (think Compaq computers), which would cause customers to run for the hills expecting the worst to happen to customer service and other functions.

Yahoo right now is just too expensive for MS.

JohnN3• 18 years ago

Personally, if I was a Yahoo shareholder I would be calling up my lawyers to start suing the Yahoo board. Financially this deal is clearly good for shareholders coming at a 60% premium.

I can't personally see why Yahoo would be worth $38 a share. The job of the board is to do what's in the best interest of shareholders but ultimately it personally seems this deal was not rejected because of the numbers but because of the sentimental attachment to Yahoo independence.

Expect some litigation

edw519• 18 years ago

I don't think Microsoft shareholders should be feeling all that comfortable, either.

This is a company with virtually unlimited resources (talent, cash, experience, partners) that wants to win every war, but can't seem to win even a single battle as the world passes by. Whats missing? Leadership. Time for vision to replace bullying. Stay tuned...

goodkarma2• 18 years ago

In several markets - such as search, search marketing (i.e. pay per click advertising), web-based applications (i.e. Google Docs or whatever MS calls it), etc., Microsoft has really dropped the ball.

The two things they lack are respect for their competition, and respect for new ideas. The ideas were there, but Microsoft didn't listen. Their competitors did.

Probably the result of Microsoft getting huge and evil and not caring about their customers. They didn't notice that technology was passing them by.

And then there was Google. When you get a lot of smart people working on something and give them a head start, it makes it very difficult for a competitor to catch up. :)

I don't think Yahoo is much better. If the average Yahoo shareholder understood how bad "Panama" is given all the hype it got, they probably would have sued Yahoo by now.

bkbleikamp2• 18 years ago

People would have said the same thing in 2003-2004 if someone offered $16 a share for AAPL...now they'd look stupid.

signa11• 18 years ago

if yahoo! has a steve-jobs in the closet somewhere, it's about time he showed up...

raganwald3• 18 years ago

What about offering $24 in 1996?

http://www.sunworld.com/swol-01-1996/swol-01-apple.html

The board turned Sun down and then went out and paid $400 million to buy NeXT. For all intents and purposes, they paidf $400 million to buy an operating system, hire an OS team headed by Avie Trevanian, and oh yes, provide a nice signing bonus for their new part-time CEO, some guy named Steve.

Lots of shareholders grumbled.

Of course, that was Apple and this is Yahoo. I don't personally think Jerry has Steve's touch, but I sincerely hope he makes me look like the wrong end of an Equine.

raganwald3• 18 years ago

What about offering $24 in 1996?

http://www.sunworld.com/swol-01-1996/swol-01-apple.html

Lots of shareholders grumbled.

Of course, that was Apple and this is Yahoo. I don't personally think Jerry has Steve's touch, but I sincerely hope he makes me look like the wrong end of an Equine.

JayNeely• 18 years ago

Nothing personal, but that's the kind of shareholder that ruins good businesses. The language of Ballmer's letter is clearly intended to cause precisely that kind of action from Yahoo! shareholders.

The shareholders sue the management, the management spends its time defending itself from lawsuits rather than leading innovation and increasing stockholder value, department projects go awry and more employees leave, and the stock drops. Microsoft makes the same kind of offer a few years later, but at an even lower price. The new management, seeing what happened to their predecessors, will take the offer, and Microsoft gets all of Yahoo!'s assets at a bargain price.

It's absolute short-sightedness on the part of stockholders. Surely the mere fact that Microsoft was willing to buy the company at a 70% premium indicates that the stock was undervalued to begin with, and that people with the tech & business knowledge to see the big picture (not just the Microsoft execs, the Yahoo! execs too) knew the value of the company could be increased.

Even if the management at Yahoo! can defend itself from these lawsuits, they'll have been put on the defensive, on every front. No major initiatives, no bold new plans, no big mergers or acquisitions that could actually help the company; if they rock the boat a second time so soon again, they won't avoid being tossed out. So while they stay the course set by the backseat drivers who don't even have a full view of the road, Microsoft is free to out-compete.

cellis• 18 years ago

Then perhaps we will see some more antitrust lawsuits?

mwerty• 18 years ago

>Surely the mere fact that Microsoft was willing to buy the company at a 70% premium indicates that the stock was undervalued to begin with

That does not follow. MSFT might see more value in yahoo as a part of msft than yahoo run independently.

JesseAldridge• 18 years ago

Reading stuff like this makes me never ever want to run a publicly traded company.

rms3• 18 years ago

Wow, I'm surprised no one has defended the Yahoo shareholders here. They have a lot of good reasons to sue.

JohnN3• 18 years ago

>"Nothing personal, but that's the kind of shareholder that ruins good businesses. The language of Ballmer's letter is clearly intended to cause precisely that kind of action from Yahoo! shareholders."

Perhaps you are right. But shareholders rarely hold stock to build good businesses they are there to make money. They would happily invest in a bad company if it was about to be bought out for a huge premium. Once you go public, few things matter other than the numbers.

Plus 72% of Yahoo shareholders are professional money managers, arbitrageurs, and regular investors. These people are likely to want this deal to go through.

goodkarma2• 18 years ago

Yes, Yahoo management will probably end up defending themselves.

But Yahoo management has a legal obligation to do what's best for the company's shareholders. Unless they've got a silver bullet that will double YHOO's market cap soon, their performance on this front seems to be below average.

cstejerean3• 18 years ago

I'm tired of people complainig on behalf of the Yahoo shareholders, especially since I haven't seen anyone that actually owns Yahoo shares complain.

ks• 18 years ago

But it's a 60% premium on a very low price. It is only a good deal if the shareholders don't expect Yahoo to rise above $30. Only time will show, but I think they have the potential to climb above $30. Their deal with Google shows that they are slowly starting to see that they can't do everything.

mronge• 18 years ago

I wonder if they are walking away from the deal so the stock tumbles, and they can come back in a quarter or two and try and nab Yahoo then. I think Oracle actually did this with Peoplesoft?

ojbyrne• 18 years ago

That would be my bet. Wasn't it BEA that Oracle did that to? Perhaps they did it more than once.

jmzachary2• 18 years ago

This definitely puts the spotlight on Yahoo to start performing PDQ. If they are the same track six months from now that they are on today, you can expect some real gnashing of teeth among the shareholders.

On the other hand, Microsoft comes out of this looking pretty good (among the none geek crowds). They tried to buy this poor company at a 60-70% premium.

I wonder if MS has another acquisition target in their sites .

nickb• 18 years ago

One thing's for sure... this news is great for startups! Having MS and Y! combined would have reduced the number of exit points for startups. Also, it would have resulted in massive layoffs which would have further reduced the number of acquisitions that they would have made as a combined company. At least now you still have three major players to negotiate with.

tptacek2• 18 years ago

Maybe. But the other way to look at it is, MSFT has an NIH culture and isn't a prolific acquirer; MSFT-YHOO combined could have produced more acquisitions than MSFT and YHOO apart.

phaedrus4• 18 years ago

I don't follow your logic: if Microsoft has an NIH culture why would the combined Microsoft+Yahoo do more acquistions than Yahoo did independently? Remember who would be consuming who here. Isn't it more likely that the larger Microsoft would replace Yahoo's culture than it would be that Yahoo's culture would mollify Microsoft's?

lyime• 18 years ago

This is extreamly unfortunate to yahoo shareholders. At the current state I don't see how yahoo can create value in the company. I wonder how bad the stock will fall starting monday

ideas101• 18 years ago

This is the best thing that could have happened for everyone (MS, Yahoo, Yahoo's stakeholders, Google, Apple and all new startups) ... there are 3 major stakeholders (shareholders, employees and end users) and two out of 3 stakeholders weren't happy with the deal - it would have been irreversible disaster if MS bought yahoo by borrowing money from outside...i think MS knew that Yahoo won't come below $37 and walking away is the best face saving tactic - it was like heads i win, tale you loose... it seemed that MS was having cold feet after realizing that yahoo brains and end users may leave the company after acquisition. Also it was uphill battle to integrate 2 businesses with totally different culture and technology. MS can do much better with $45Billion.

dangoldin2• 18 years ago

And that is a lesson to us all that we should have private companies.

neilc• 18 years ago

Really? How does that follow?

phaedrus4• 18 years ago

I think he means you can't (AFAIK - please correct me) do a hostile takeover of a private company, at least not in the same manner. because in a privately owned company there are no public stockholders to appeal to; the owner and the manager of the business are one and the same.

Really though, what this really is is an example of why you should have a dual-class share system where there are "investment shares" and "voting shares", and investing doesn't give you automatic voting rights. Yahoo for some reason didn't have that, and it put the board especially at risk to hostile takeover.

grantc• 18 years ago

Yahoo was in the headlights before. Now they're just roadkill.

I think a MSFT+YHOO merger would have been massive fail, but it's Microsoft that ends up dodging the bullet here. Yahoo just takes one. Where exactly is Yahoo relevant anymore?

misterbwong• 18 years ago

I'm probably way off base, but it seems like MSFT is doing this to decrease the price of YHOO.

1. Pull out offer 2. Shareholders complain 3. Markets kill YHOO 4. MSFT comes back and buys cheaper?

Microsoft Withdraws Yahoo Bid; Walks Away From Deal

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