Microsoft offers $44.6 Billion for Yahoo

Microsoft just announced what has been rumored forever: a formal offer for Yahoo. Microsoft's proposal to Yahoo's board of directors represents $31 per share (a 62% premium over yesterday's closing price) or about $44.6 Billion. Steve Ballmer, CEO and big fan of developers, says, "We have great respect for Yahoo!, and together we can offer an increasingly exciting set of solutions for consumers, publishers and advertisers while becoming better positioned to compete in the online services market." Apparently, the deal was laid out in a letter sent by Ballmer to Yahoo's board just yesterday. Seriously. The letter confirms that the two giants have been discussing the topic since late 2006. It also appears to be a direct response to the Google threat as outlined in the following paragraph:

"Today, the market is increasingly dominated by one player who is consolidating its dominance through acquisition. Together, Microsoft and Yahoo! can offer a credible alternative for consumers, advertisers, and publishers."

The deal, of course, rests with the two coming to a "merger agreement" and Microsoft (and Yahoo to a limited degree) having the time to conduct the required due diligence. Microsoft is ready to begin immediate discussions and have a draft merger agreement ready for consideration. So Yahoo, ball's in your court. The world is wondering... what will you do?

[SonyPS3Sucks @ Feb 1st 2008 6:42AM]

Xbox + yahoo = :)

[carl @ Feb 1st 2008 6:43AM]

WOW!!,
That could really shake things up in the the tech world.

[Boris @ Feb 1st 2008 6:48AM]

Go Microsoft. About damn time too.

[Boris @ Feb 1st 2008 6:53AM]

Below is the text of the letter that Microsoft sent to Yahoo!'s Board of
Directors:

January 31, 2008


Board of Directors
Yahoo! Inc.
701 First Avenue
Sunnyvale, CA 94089
Attention: Roy Bostock, Chairman
Attention: Jerry Yang, Chief Executive Officer

Dear Members of the Board:

I am writing on behalf of the Board of Directors of Microsoft to make a proposal for a business combination of Microsoft and Yahoo!. Under our proposal, Microsoft would acquire all of the outstanding shares of Yahoo! common stock for per share consideration of $31 based on Microsoft's closing share price on January 31, 2008, payable in the form of $31 in cash or 0.9509 of a share of Microsoft common stock. Microsoft would provide each Yahoo! shareholder with the ability to choose whether to receive the consideration in cash or Microsoft common stock, subject to pro-ration so that in the aggregate one-half of the Yahoo! common shares will be exchanged for shares of Microsoft common stock and one-half of the Yahoo! common shares will be converted into the right to receive cash. Our proposal is not subject to any financing condition.

Our proposal represents a 62% premium above the closing price of Yahoo! common stock of $19.18 on January 31, 2008. The implied premium for the operating assets of the company clearly is considerably greater when adjusted for the minority, non-controlled assets and cash. By whatever financial measure you use - EBITDA, free cash flow, operating cash flow, net income, or analyst target prices - this proposal represents a compelling value realization event for your shareholders.

We believe that Microsoft common stock represents a very attractive investment opportunity for Yahoo!'s shareholders. Microsoft has generated revenue growth of 15%, earnings growth of 26%, and a return on equity of 35% on average for the last three years. Microsoft's share price has generated shareholder returns of 8% during the last one year period and 28% during the last three year period, significantly outperforming the S&P 500. It is our view that Microsoft has significant potential upside given the continued solid growth in our core businesses, the recent launch of Windows Vista, and other strategic initiatives.

Microsoft's consistent belief has been that the combination of Microsoft and Yahoo! clearly represents the best way to deliver maximum value to our respective shareholders, as well as create a more efficient and competitive company that would provide greater value and service to our customers. In late 2006 and early 2007, we jointly explored a broad range of ways in which our two companies might work together. These discussions were based on a vision that the online businesses of Microsoft and Yahoo! should be aligned in some way to create a more effective competitor in the online marketplace. We discussed a number of alternatives ranging from commercial partnerships to a merger proposal, which you rejected. While a commercial partnership may have made sense at one time, Microsoft believes that the only alternative now is the combination of Microsoft and Yahoo! that we are proposing.

In February 2007, I received a letter from your Chairman indicating the view of the Yahoo! Board that "now is not the right time from the perspective of our shareholders to enter into discussions regarding an acquisition transaction." According to that letter, the principal reason for this view was the Yahoo! Board's confidence in the "potential upside" if management successfully executed on a reformulated strategy based on certain operational initiatives, such as Project Panama, and a significant organizational realignment. A year has gone by, and the competitive situation has not improved.

While online advertising growth continues, there are significant benefits of scale in advertising platform economics, in capital costs for search index build-out, and in research and development, making this a time of industry consolidation and convergence. Today, the market is increasingly dominated by one player who is consolidating its dominance through acquisition. Together, Microsoft and Yahoo! can offer a credible alternative for consumers, advertisers, and publishers. Synergies of this combination fall into four areas:

-- Scale economics: This combination enables synergies related to scale
economics of the advertising platform where today there is only one
competitor at scale. This includes synergies across both search and
non-search related advertising that will strengthen the value
proposition to both advertisers and publishers. Additionally, the
combination allows us to consolidate capital spending.
-- Expanded R&D capacity: The combined talent of our engineering
resources can be focused on R&D priorities such as a single search
index and single advertising platform. Together we can unleash new
levels of innovation, delivering enhanced user experiences,
breakthroughs in search, and new advertising platform capabilities.
Many of these breakthroughs are a function of an engineering scale that
today neither of our companies has on its own.
-- Operational efficiencies: Eliminating redundant infrastructure and
duplicative operating costs will improve the financial performance of
the combined entity.
-- Emerging user experiences: Our combined ability to focus engineering
resources that drive innovation in emerging scenarios such as video,
mobile services, online commerce, social media, and social platforms is
greatly enhanced.

We would value the opportunity to further discuss with you how to optimize the integration of our respective businesses to create a leading global technology company with exceptional display and search advertising capabilities. You should also be aware that we intend to offer significant retention packages to your engineers, key leaders and employees across all disciplines.

We have dedicated considerable time and resources to an analysis of a potential transaction and are confident that the combination will receive all necessary regulatory approvals. We look forward to discussing this with you, and both our internal legal team and outside counsel are available to meet with your counsel at their earliest convenience.

Our proposal is subject to the negotiation of a definitive merger agreement and our having the opportunity to conduct certain limited and confirmatory due diligence. In addition, because a portion of the aggregate merger consideration would consist of Microsoft common stock, we would provide Yahoo! the opportunity to conduct appropriate limited due diligence with respect to Microsoft. We are prepared to deliver a draft merger agreement to you and begin discussions immediately.

In light of the significance of this proposal to your shareholders and ours, as well as the potential for selective disclosures, our intention is to publicly release the text of this letter tomorrow morning.

Due to the importance of these discussions and the value represented by our proposal, we expect the Yahoo! Board to engage in a full review of our proposal. My leadership team and I would be happy to make ourselves available to meet with you and your Board at your earliest convenience. Depending on the nature of your response, Microsoft reserves the right to pursue all necessary steps to ensure that Yahoo!'s shareholders are provided with the opportunity to realize the value inherent in our proposal.

We believe this proposal represents a unique opportunity to create significant value for Yahoo!'s shareholders and employees, and the combined company will be better positioned to provide an enhanced value proposition to users and advertisers. We hope that you and your Board share our enthusiasm, and we look forward to a prompt and favorable reply.

Sincerely yours,

/s/ Steven A. Ballmer
Steven A. Ballmer
Chief Executive Officer
Microsoft Corporation

[guitarboy @ Feb 1st 2008 6:52AM]

Huge news. This is a strategic move against Google. Along with recent encroaches from Verizon and others, I wonder if the boys in Mountain View are getting nervous.

[Phil Perman @ Feb 1st 2008 6:52AM]

Does this mean we'll now get to call Microsoft "Microsoft!"? Because thats just a far more fun name

[Don G. @ Feb 1st 2008 6:53AM]

It seems M§ finally realized that they couldn't pull of their ambitions on their own. I think it can be healthy competition for Google, for the benefit of all of us. Hopefully.

[ashokpai @ Feb 24th 2008 11:38PM]

that'd really be sad if yahoo! agrees to MS. yahoo is a nice company, i'll withdraw my services with yahoo! if they join the evil empire. im sure, pretty much a chunk of users will be lost to google.

[Ben Hayes @ Feb 1st 2008 6:54AM]

Seems like a phenomenally bad idea. These giants are big enough as it is; we want more variety and competition on the web, not more homogeneousness.

[JAmerican @ Feb 1st 2008 6:53AM]

Yahoo will be renamed Xahoo!

[jared @ Feb 1st 2008 7:03AM]

"Today, the market is increasingly dominated by one player who is consolidating its dominance through acquisition...."

So, instead, they want to dominate by consolidating through acquisition. Isn't that what they are fighting against!

Hello Kettle, I'm Pot.

[Toink @ Feb 1st 2008 7:06AM]

Yahooooooooooooo!!!!
















Not!

I'm for a multi-polar tech world...

[ihalili @ Feb 1st 2008 7:17AM]

Nice, but!! what about msn and hotmail are they going to exist.

[Carbonize @ Feb 1st 2008 7:10AM]

Well given that Yahoo! Messenger and MSN Messenger (sorry I mean Windows Live Messenger) have been interoperable for a couple of years now this is really not that surprising.

Would be nice to be able to send messages from Yahoo! to Xbox live.

[Totalfixation @ Feb 1st 2008 7:11AM]

@Ben Hayes

I would have to disagree, Google is just too big in the online service market. It just doesn't look like yahoo can keep up. Microsoft can barely even penetrate the online service market. So i assume with this tag team it could really boost some competition. I just feel these two companies are just out for each other. unlike the wireless companies with there ever so increasing sms fees and higher rate. All they do is jack up the prices. I can see your point Ben but i really see Microsoft and Google as true rivals. you can just see it in Google's eye that its gunning it for Microsoft.

[DrXym @ Feb 1st 2008 7:12AM]

I don't see any benefit of this buyout to consumers. I'm sure shareholders will be delighted.

[LJKelley @ Feb 1st 2008 7:13AM]

This would be awesome :) YAHOO!!

[Erwos @ Feb 1st 2008 7:16AM]

Maybe TW will sell AOL to Google. Please G-d, let that happen. I'd love to work for Google.

[Celanor @ Feb 4th 2008 12:10PM]

I wouldn't be surprised if Google bought AOL, they are at least co-operating on some levels with the AIM built in the Google Talk...

Wonder which faction will gun for government first...

[ihalili @ Feb 1st 2008 7:19AM]

Microhooo :)

[Wireless Buddy @ Feb 1st 2008 7:22AM]

I thought this sounded good when I first read it, but then...




Microsoft is going to mess up Yahoo! even more. The website already has so many bugs, now the tools are going to suck too. At least their tools are great when they work.

[z3r0D @ Feb 1st 2008 7:20AM]

Won't this just propel the EU to bring more lawsuits against microsoft and have the companies stifle innovation from smaller companies?

[Intrepid @ Feb 1st 2008 7:22AM]

As long as they don't rebrand it all. In fact Microsoft should put some existing services under the Yahoo name!

Here's an issue. In Australia the Nine Television Network is partnered with msn, and the Seven Network is partnered with Yahoo...

[Ken @ Feb 1st 2008 7:41AM]

I can only see this ending up badly for both companies. The corporate infighting and posturing for middle management will make an Ali v Frasier fight look like a cuddle. I'm off to buy Apple shares!

[nxtiak @ Feb 1st 2008 7:26AM]

$44.6

[Talon Trax @ Feb 1st 2008 7:27AM]

Microsoft buys Yahoo?!? Ahhh Geez, there goes the neighborhood. I'll have to finally cancel my Yahoo mail and merge 100% over to GMail, find a Flickr alternative, hmmmmm and how else would I have to purge M$ from my life?!? Guess that's all I really use Yahoo for anyway. I guess I won't be greatly impacted and explains why Yahoo isn't doing that well because they really don't offer much. At first I was bothered because of my loathing of M$, but now that I think about it, go ahead, what do I care?!?

[BigD @ Feb 1st 2008 7:28AM]

I sure hope this means I will soon be able to use Yahoo IM with Voice on my WM Pocket PC, soon.

[Luigi193 @ Feb 1st 2008 7:32AM]

I'll still use google...

GOOGLE FTW!!!!

[Federico @ Feb 1st 2008 7:36AM]

AH AH AH!!!!
This is the death kiss for Yahoo.
Sorry, you won't be missed.

[Cesar Cardoso @ Feb 1st 2008 7:36AM]

Wow. An awful lot of money. Now the big question: does Y! shareholders think Microhoo! (we should settle on a combined Microsoft-Yahoo! name) it's a good idea?

[Don Giovanni @ Feb 1st 2008 7:38AM]

The fact is Android will open up the mobile market
Google will always have a superior search engine
Services like Flickr shooting themselves in the foot
They (m$) still wont make a IM client avail for the BB unlike Yahoo

Shouldve seen it coming when they came to compromise and allowed msn to chat with yahoo

[Ben Swain @ Feb 1st 2008 7:37AM]

Please no, I actually like some of Yahoo's stuff. Microsoft would just ruin it. I don't want to have to find an alternative to Flickr.

[Dave B @ Feb 1st 2008 7:41AM]

@ERWOS Amen brotha, perhaps we would get pool tables in the break rooms :) Anyway, I love Flickr, and Microsoft! better not touch it. I'm not so happy about the big steamroller running over Yahoo! It seems a bit monopolistic, and well, I hate MS quite frankly.

[Ty @ Feb 1st 2008 7:46AM]

For the love of God, do NOT let MS buy Yahoo. Name one product that MS makes that works flawlessly! They don't need to bring their "jack of all trades" attitude to Yahoo. I see a mass exodus coming.

[Bad Beaver @ Feb 1st 2008 7:45AM]

Ya-what?

[huggles @ Feb 1st 2008 7:56AM]

And in other news today... Googles hired hippies just drove past your home in a van doing 30mph with GPS, a mass storage unit and photographic equipment and just put you on the map!

[Semi @ Feb 1st 2008 7:58AM]

recently i've started to dislike yahoo...because of flickr...
maybe MS can buy it and fix it...

[Javaflash @ Feb 1st 2008 7:59AM]

Finally, some adults to run Yahoo!

[z @ Feb 1st 2008 8:03AM]

The major problem with MS is its philosophy. I really hope Yahoo (and Flickr!) can escape this...

[ControlMaster @ Feb 3rd 2008 4:32AM]

Ohh No

I am already sick of Micorosoft's ubiquitous presence in desktop and development platform.
Now please don't do this to Yahoo.

ControlMaster

[Graham @ Feb 1st 2008 8:07AM]

Id just hate to have my awesome yahoo mail and messenger screwed up by msft. I mean they work awesome and run awesome...first update after microsoft takes over, it all crashes.

[Adie @ Feb 1st 2008 8:11AM]

"Steve Ballmer, CEO and big fan of developers"
That made me laugh.

[leegoldstein @ Feb 1st 2008 8:16AM]

This will ruin Yahoo. Microsoft ruins everything they touch. This is clearly about search and advertising dollars, but the Yahoo content will suffer. Now I need to abandon my decade-old MyYahoo page, and find a flickr alternative. Sure, not immediately, but as soon as the microsoft "creep" starts to encroach on everything, and it becomes distasteful enough...I'm out.

Netvibes, iGoogle, I'm looking in your direction....

[Geoffrey Sperl @ Feb 1st 2008 8:17AM]

@ Semi: Funny - acquiring Flickr is the the only thing Yahoo has done right in years. It's probably the best photosharing site on the net and it's implemented quite well. But that's my opinion.

@ Everyone Else: This isn't that special, folks. Even a combined Yahoo/Microsoft will still only account for 27% of the advertising marketplace and it's the advertising that MS is trying to buy Yahoo for. MS doesn't care about using Yahoo's stable for your Xbox, Zune, or anything else. They want the advertising revenue.

[Yevon @ Feb 1st 2008 8:23AM]

Am I the only one who caught the developer joke about Balmer? This guy has issues...

http://youtube.com/watch?v=KMU0tzLwhbE

http://youtube.com/watch?v=d_AP3SGMxxM&feature=related

[CanCar @ Feb 1st 2008 10:56AM]

Microsoft has become technological giant and they wants to monopolize all the market. It would be good that they stayed separated, to maintain both competitions.

[fourthletter @ Feb 1st 2008 8:53AM]

I doubt there would be a combined name if this goes through, the logical step would be for M$ to brand all their online services as Yahoo!
Can't believe people are complaining about this ! If M$ don't pull this off then Google will vanish into the sunset with online services and the faster net access gets the more services will be possible.
I doubt there is any anti-trust problems associated with this merger as Google is the dominant force.
Nice to see if M$ can manage this merger any better than AMD have.

[timatl @ Feb 1st 2008 8:37AM]

competition is alwasy good for the consumer/web user. this will challenge google to things even better and faster. this will force them to become even more creative and think outside of the box.

[gggggMEN @ Feb 1st 2008 8:34AM]

Will I still be able to check my yahoo account on my iphone come mid year?

[Benjamin Chan @ Feb 1st 2008 11:39AM]

Microsoft, just don't fuck with flickr. You can do what you want with everything else.