Ballmer's Letter to Jerry Yang Withdrawing Microsoft's Offer
Following is the verbatim text of the letter from Microsoft's Steve Ballmer to Yahoo's Jerry Yang. The source of this letter is Microsoft.
May 3, 2008
Mr. Jerry Yang
CEO and Chief Yahoo
Yahoo! Inc.
701 First Avenue
Sunnyvale, CA 94089
Dear Jerry:
After over three months, we have reached the conclusion of the process regarding a possible combination of Microsoft and Yahoo!.
I first want to convey my personal thanks to you, your management team, and Yahoo!’s Board of Directors for your consideration of our proposal. I appreciate the time and attention all of you have given to this matter, and I especially appreciate the time that you have invested personally. 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.
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!.
We will move forward and will continue to innovate and grow our business at Microsoft with the talented team we have in place and potentially through strategic transactions with other business partners.
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. By failing to reach an agreement with us, you and your stockholders have left significant value on the table.
But clearly a deal is not to be.
Thank you again for the time we have spent together discussing this.
Sincerely yours,
Steven A. Ballmer
Chief Executive Officer
Microsoft Corporation
------------------------
Analysis:
As we noted in the previous post there is good reason to believe that Microsoft is still in this to win Yahoo. Ballmer even uses the word "remains the only alternative", suggesting that the offer is still informally on the table. Ballmer somewhat ominously says:
.... our offer remains the only alternative put forward that provides your stockholders full and fair value for their shares. By failing to reach an agreement with us, you and your stockholders have left significant value on the table.
The Yahoo board is likely to have significant concerns already about shareholder lawsuits if the stock tanks following Microsoft's withdrawl, and this statement seems designed to drive that board vs shareholder wedge even further.
Of great concern to Ballmer in the letter are Yahoo's negotiations with Google to have Google take over Yahoo advertising. Ballmer implies that Microsoft was very concerned about the ability to compete with Google using online advertising tools. Yahoo is now refining the adwords-like "Panama" but may diminish that project if Google starts handling Yahoo monetization of advertising. Ballmer also suggests that Yahoo negotiators were using this Google alliance as something of a "poison pill" to kill the deal.
So, has the fat lady sung yet? I think not, and we are in for more fun as the high stakes game for the control of the internet ... continues.
Disclosure: Long on YHOO
May 3, 2008
Mr. Jerry Yang
CEO and Chief Yahoo
Yahoo! Inc.
701 First Avenue
Sunnyvale, CA 94089
Dear Jerry:
After over three months, we have reached the conclusion of the process regarding a possible combination of Microsoft and Yahoo!.
I first want to convey my personal thanks to you, your management team, and Yahoo!’s Board of Directors for your consideration of our proposal. I appreciate the time and attention all of you have given to this matter, and I especially appreciate the time that you have invested personally. 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.
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!.
We will move forward and will continue to innovate and grow our business at Microsoft with the talented team we have in place and potentially through strategic transactions with other business partners.
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. By failing to reach an agreement with us, you and your stockholders have left significant value on the table.
But clearly a deal is not to be.
Thank you again for the time we have spent together discussing this.
Sincerely yours,
Steven A. Ballmer
Chief Executive Officer
Microsoft Corporation
------------------------
Analysis:
As we noted in the previous post there is good reason to believe that Microsoft is still in this to win Yahoo. Ballmer even uses the word "remains the only alternative", suggesting that the offer is still informally on the table. Ballmer somewhat ominously says:
.... our offer remains the only alternative put forward that provides your stockholders full and fair value for their shares. By failing to reach an agreement with us, you and your stockholders have left significant value on the table.
The Yahoo board is likely to have significant concerns already about shareholder lawsuits if the stock tanks following Microsoft's withdrawl, and this statement seems designed to drive that board vs shareholder wedge even further.
Of great concern to Ballmer in the letter are Yahoo's negotiations with Google to have Google take over Yahoo advertising. Ballmer implies that Microsoft was very concerned about the ability to compete with Google using online advertising tools. Yahoo is now refining the adwords-like "Panama" but may diminish that project if Google starts handling Yahoo monetization of advertising. Ballmer also suggests that Yahoo negotiators were using this Google alliance as something of a "poison pill" to kill the deal.
So, has the fat lady sung yet? I think not, and we are in for more fun as the high stakes game for the control of the internet ... continues.
Disclosure: Long on YHOO
posted by Joseph Hunkins at 5:57 PM
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6 Comments:
It's a loss for everyone - Internet marketers, advertisers, publishers, agencies and most importantly, searchers. The thought of having an alliance that can possibly "tame" the Google beast was quite enticing. Google is so powerful that if one makes a careless mistake on Adwords, they will not be warned but instead get immediately punished with a $10/click penalty. I have a lot of respect for Google but being both a publisher and a paying advertiser, I feel they boss and just kick the small players around. Of course if you're from a Fortune 500 company the treatment will be 180 deg. As a small business owner, it would be nice if they at least showed that they cared and respect the billions of dollars us small business owners invested.
Consider that most big acqs fail as key entrepreneurial team members cash in and leave. Just as Google is very Python-JS biased similarly Microsoft has its own idiosyncrasies (.Net, C#, Pushing its core 90% of revenue products of office/windows at any cost). I don't think the cultures of Microsoft and Yahoo would mesh. Microsoft would be stronger but Yahoo would disappear into thin air as it seems Microsoft doesnt really need or want any core technologies from Yahoo - simply the AD Dollar Accounts! This is partially reflected in their unwillingness to raise the offer.
From a consumer and advertiser/publisher point of view I very much doubt Microhoo would help us. It would simply create two monopolistic monsters and nearly sound the end of the Web1.0 and probably the Web2 eras.
The truth is, no one really knows what would happen if Microsoft and Yahoo became one.
People talk about the different 'cultures' of Microsoft and Yahoo.
Microsoft makes money off proprietary software every step of the way.
Maybe if Microsoft had outlined to Yahoo and to the world a strategy that was a little more detailed than 1+1=3 the deal would have gone down.
with or without MSFT, Yahoo is going down the road of Netscape. It's innovations come from viewing others, which is akin to MSFT's behavior towrds innovation. Only Google has been able to maintain the innovation skills of a young start-up.
Jerry Yang,needs to sell the company to someone like FACEBOOK.
I feel this is a smart move by Yang. He has already shown that he can turn the company around. 2008 Q1 earnings were good. He deserves a chance to see the transition through. It is not Yahoo that has lost here as many have pointed out (maybe financially) but in the long run MSFT stands to loose significantly if they don't turn the ship around. Yahoo was their best bet. Having said that, not very comfortable with YHOO and GOOG relationship. If Yang outsources YHOO's ads to GOOG it will hurt the company in the long run because it sends the message that he does not have faith in YHOO products.
Yahoo leadership agreed with the strategic rationale of the deal on balance if the final issue was primarily about price.
If that is the case, then outsourcing the most strategic aspect of their business - the yield of their ad platform - to Google is mistake.
If outsourcing to Google is a strategic mistake, then Yahoo returns back to the position of needing scale as a way to lift yield and revenue, which means they need the Microsoft deal.
We should be back to round II with MSFT in a few months because the combination of the two - and the scale that comes with it, which is the strategic rationale for the deal - remains.
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