labels: Infotech, IT news, Microsoft, Yahoo!
Microsoft withdraws from Yahoo!; shareholders restive with Yang news
05 May 2008

Microsoft has announced having withdrawn its proposal to acquire Yahoo! on Saturday shotly after having raised its cash and stock bid from $31 per share to $33, a prmium of 70 per cent to Yahoo's closing stock price of $19 on 31 January 2008. (See: Microsoft to raise bid for Yahoo! to $33 per share).

Steve Ballmer, chief executive officer, Microsoft, said, ''We continue to believe that our proposed acquisition made sense for Microsoft, Yahoo! and the market as a whole.

He said Microsoft's goal in pursuing a combination with Yahoo! was to provide greater choice and innovation in the marketplace and create real value for the respective stockholders and employees of the two companies.  However, ''Despite our best efforts, including raising our bid by roughly $5 billion, Yahoo! has not moved toward accepting our offer," he said.

On Yahoo! holding out for a higher offer of $37 per share, Ballmer said, "After careful consideration, we believe the economics demanded by Yahoo! do not make sense for us, and it is in the best interests of Microsoft stockholders, employees and other stakeholders to withdraw our proposal.''

He added, ''We have a talented team in place and a compelling plan to grow our business through innovative new services and strategic transactions with other business partners. While Yahoo! would have accelerated our strategy, I am confident that we can continue to move forward toward our goals.''

In a courteous letter to Yahoo! CEO and co founder Jerry Yang also ruled out a hostile bid, saying, "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. (See:Microsoft CEO Steve Ballmer's letter to Yahoo! co founder and CEO Jerry)

In his letter, Ballmer also said that Yahoo's plans of outsourcing to Google Yahoo's! key Panama paid search system internet search terms would make an acquisition of Yahoo! undesirable to Microsoft, as it would undermine Yahoo's viability and affect its ability to retain its talented engineering team.

In a veiled warning to Yahoo! over its future, Ballmer said, "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."

Kevin Johnson, Microsoft president for platforms and services, said, ''We are investing heavily in new tools and web experiences, we have dramatically improved our search performance and advertiser satisfaction, and we will continue to build our scale through organic growth and partnerships."

Yahoo! came under pressure on Sunday from its shareholders, particularly the larger institutional investors who also own Miocrosoft shares and were keen on a merger between the two firms, to find an alternative strategy to Microsoft's enhanced $47.5-billion takeover offer after. (See:Yahoo!'s bigger shareholders may opt for merger with Microsoft

If the management fails in its bid to provide an alternative acceptable to these shareholders, the Yahoo! board could face shareholder lawsuits. Some dissident shareholders have already held out the threat of withdrawing support to the company or suing it for the breakdown of negotiations with Microsoft. They allege that shareholders didn't get a chance to vote on the deal, and instead the board negotiated on their behalf but did not do so in good faith.

Analysts now expect Yahoo! to drive for an advertising partnership with Google Inc, to salvage its operating performance in the near term. Yahoo! is also  said to be still considering a deal with Time Warner Inc's AOL (See: Yahoo! likely to rebuff Microsoft and look for more 'compatible' suitors

Commentators say search engine leader Google has emerged the real winner with Microsoft having walked away from the bid for Yahoo, as it does not have to worry over the possiblity of the emertgence of a strong rival to it.

Is the deal really dead?

In the meantime commentators are asking whether the deal is really dead. If Yahoo!'s shares decline sharply to around where they were prior to Microsoft's initial offer on 31 January, when the markets open later in the day today, its shareholders may find it difficult to accept Yahoo having lost them a $33-per share deal and push the board to reopen dialogue with Microsoft. Under such circumstances Microsoft's interest in Yahoo could be rekindled.

Again, if Yahoo! fails to come up with an attractive enough option to the microsoft offer to satisfy its shareholders, then again Microsoft could be induced to revive its offer.  They also point out to how Oracle returned, though with a higher offer, for software maker BEA Systems when the two could not arrive at a negotisted settlement over the acquisition price.


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Microsoft withdraws from Yahoo!; shareholders restive with Yang