Microsoft Proposes Yahoo Disposes!
Yahoo has once again rejected a new offer by Microsoft to acquire Yahoo’s search business. Previously Yahoo shareholder Icahn and MS CEO, Steve Ballmer had been discussing about various possible transactions. During the transaction Steve Ballmer had made it clear that if a new board were elected, he would be interested in discussing a major transaction with Yahoo immediately. The only thing lacking was that there was no room for negotiation.
I strongly favor Yahoo for rejecting the deal. According to me the Google search deal they’ve signed is a better one.
Flash Back (The First Micro-Hoo Deal) – Microsoft proposes and Yahoo disposes:
Microsoft offered Yahoo $31 per Yahoo share but Yahoo declined the offer stating that the offer grossly undervalues Yahoo.
What does Yahoo say regarding the new offer?
The proposal was made on Friday evening was given less than 24 hours to accept the proposal, the fundamental terms of which Microsoft and Mr. Icahn made clear they were unwilling to negotiate. After reviewing the proposal with its legal and financial advisers, Yahoo!’s Board of Directors determined that accepting the proposal is not in the best interests of its stockholders.
Roy Bostock, Chairman of Yahoo! said,
“This odd and opportunistic alliance of Microsoft and Carl Icahn has anything but the interests of Yahoo!’s stockholders in mind. Clearly, Microsoft, having failed to advance in search, is aligning with the short-term objectives of Mr. Icahn to coerce Yahoo! into selling its core strategic search assets on terms that are highly advantageous to Microsoft, but disadvantageous to Yahoo! stockholders. Yahoo’s Board of Directors will not allow that to happen. Yahoo!’s Board remains open to any transaction that delivers full value to our stockholders – we just do not believe such a transaction should be dictated by Microsoft and a single short-term investor.”
How does the board explain its reasons behind the rejection?
1. Yahoo!’s existing business plus its recently signed commercial agreement with Google has superior financial value and less complexity and risk than the Microsoft/Icahn proposal.
2. The Microsoft/Icahn proposal would preclude a potential sale of all of Yahoo! for a full and fair price, including a control premium.
3. The major component of the overall value per share asserted by Microsoft/Icahn would be in Yahoo!’s remaining non-search businesses which would be overseen by Mr. Icahn’s slate of directors, which has virtually no working knowledge of Yahoo!’s businesses.
4. The Microsoft/Icahn proposal would require the immediate replacement of the current Board and removal of the top management team at Yahoo!. The Yahoo! Board believes these moves would destabilize Yahoo! for the up to the one year it would take to gain regulatory approval for this deal.
Mr. Bostock further adds
“After negotiating among themselves without the involvement of Yahoo!, Carl Icahn and Microsoft presented us with a ‘take it or leave it’ proposal under which we would be required to restructure the Company, hand over to Microsoft Yahoo!’s valuable search business and to Carl Icahn the rest of the Company, giving us less than 24 hours to respond. It is ludicrous to think that our Board could accept such a proposal. While this type of erratic and unpredictable behavior is consistent with what we have come to expect from Microsoft, we will not be bludgeoned into a transaction that is not in the best interests of our stockholders.”
Although there are many improvements in the current bid by Microsoft, Yahoo Board members still believe that Microsoft and Mr. Icahn are overstating the value their search and restructuring proposal would deliver to Yahoo! stockholders and are substantially understating the risks. Finally Yahoo concluded saying that the current proposal is not in the best interests of stockholders as it is based on a number of factors, including:
– The revenue guarantees suggested, which are conditional and subject to reduction, are well below the search revenue that the Company is expected to generate on its own and in association with its announced commercial agreement with Google. That agreement alone is estimated to generate $250 to $450 million of incremental cash flow for the first twelve months following implementation, while allowing Yahoo! to remain a principal in paid search;
– The success of the remaining Company is critically dependent on Microsoft’s ability to effectively monetize search;
– Microsoft/Icahn’s proposed Traffic Acquisition Costs rates are below market;
– The proposal calls for Yahoo! to sell its industry-leading algorithmic search business and its related strategic and valuable intellectual property portfolio for no incremental consideration; and
– Many of the components of the headline value that Mr. Icahn and Microsoft put forward, such as the spin-off of the Yahoo!’s Asian assets and the return of cash to stockholders, are steps that could be taken by Yahoo! on its own and the Board continues to evaluate these options.
Mr. Bostock concluded,
“Microsoft and Mr. Icahn are trying to dismantle the Company and deliver our search business to Microsoft on terms that would be disadvantageous to Yahoo! stockholders. We are prepared to let our stockholders, not Microsoft and Carl Icahn, decide what is in their best interests and we look forward to the upcoming vote.”
Google must surely be having a sigh of relief for some time. But it surely needs prepare itself for the ultimate battle. There are many questions that are arising in my mind like will Yahoo be able to keep going on as an individual company or it will be known as Mircro-Hoo. This is surely a new beginning to the Microsoft – Yahoo saga and I wonder what will be Microsoft’s next step.
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I loved the first pic
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