Microsoft Makes $45 Billion Bid To Buy Yahoo
is to bid $31 per share to Yahoo’s board of directors to purchase the
company, a deal potentially worth $45 billion. Below, more details, some history,
and analysis. We’ll also keep updating this story, and we’ll have a separate
post linked from this when the
conference call starts.
Microsoft has proposed to Yahoo’s
Directors that Microsoft acquire all Yahoo shares for $31, which is
currently estimated to be worth $44.6 billion. Yahoo shareholders would get
either cash or Microsoft shares (0.9509 of shares per 1 Yahoo share), though the
entire deal couldn’t involve more than half payment overall in cash ($22.3
billion). The price is said by Microsoft to be 62 percent higher than what Yahoo
shares went for as of the close of trading yesterday. Note that former Yahoo CEO
has just stepped down as chairman of the board, with existing board member
Roy Bostock now stepping up.
UPDATE: Yahoo has posted a short
Yahoo! Inc. (Nasdaq:YHOO), a leading global Internet company, today said that
it has received an unsolicited proposal from Microsoft to acquire the Company.
The Company said that its Board of Directors will evaluate this proposal
carefully and promptly in the context of Yahoo!’s strategic plans and pursue the
best course of action to maximize long-term value for shareholders.
UPDATE: Call now has happened, rough live blog notes
Microsoft execs, from the company
press release, about the move:
"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," said Steve Ballmer, chief executive officer of Microsoft. "We believe
our combination will deliver superior value to our respective shareholders and
better choice and innovation to our customers and industry partners."
"Our lives, our businesses, and even our society have been progressively
transformed by the Web, and Yahoo! has played a pioneering role by building
compelling, high-scale services and infrastructure," said Ray Ozzie, chief
software architect at Microsoft. "The combination of these two great teams
would enable us to jointly deliver a broad range of new experiences to our
customers that neither of us would have achieved on our own."
The online advertising market is growing at a very fast pace, from over $40
billion in 2007 to nearly $80 billion by 2010. The resulting benefits of scale
along with the associated capital costs for advertising platform providers
make this a time of industry consolidation and convergence. Today this market
is increasingly dominated by one player. Together, Microsoft and Yahoo! can
offer a competitive choice while better fulfilling the needs of customers and
"The combined assets and strong services focus of these two companies will
enable us to achieve scale economics while reaching R&D critical mass to
deliver innovation breakthroughs," said Kevin Johnson, president of the
Platforms & Services Division of Microsoft. "The industry will be well served
by having more than one strong player, offering more value and real choice to
advertisers, publishers and consumers."
Why Do It?
The Microsoft summary, from the release:
The combination will create a more efficient company with synergies in four
areas: scale economics driven by audience critical mass and increased value
for advertisers; combined engineering talent to accelerate innovation;
operational efficiencies through elimination of redundant cost; and the
ability to innovate in emerging user experiences such as video and mobile.
Microsoft believes these four areas will generate at least $1 billion in
annual synergy for the combined entity.
I’ll add longer non-Microsoft analysis as I continue to update this story,
along with some references. But the short story is this: Search is important,
and Microsoft has failed to build, much less maintain search share while Yahoo
has held steady against Google. Some fast backup links on this:
- Microsoft Seeks 30
Percent Of Search Market And Much Bigger Chunk Of Online Ad Revenues
("Microsoft wants its share of search to rise to 30 percent. Wow. Better go
buy Yahoo. That would be the easiest, fastest way to actually do this in the
face of generally declining share, as covered recently in
Google Top Worldwide
Search Engine; Baidu Beats Microsoft and
Google Top Worldwide
Search Engine; Baidu Beats Microsoft)
- Comparing Search
Popularity Ratings Services: June To Nov. 2007 (has charts showing search
share for all major search engines in the US over time)
How To Do It?
Exactly how Yahoo would be merged isn’t clear. The release says simply:
Microsoft has developed a plan and process that will include the employees
of both companies to focus on the integration of the combined business.
Microsoft intends to offer significant retention packages to Yahoo! engineers,
key leaders and employees across all disciplines.
the letter to Yahoo’s board, Microsoft adds:
- 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
- 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
- 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
The idea of Yahoo and Microsoft getting together has been out there for
years, often scoffed at, but making sense in Yahoo’s large lead in search
against Microsoft and that company’s failure to quickly gain on Google, much
Back in May 2006, then Yahoo CEO Terry Semel
now famously quipped about Microsoft having "no chance in search:"
In a breakfast
with New Yorker writer Ken Auletta, Mr. Semel, a former film industry
executive, swatted down the idea that Yahoo ever talked about an outright sale
to Microsoft. Instead, he said that they tossed around the notion of Microsoft
buying a stake in Yahoo’s search business — a transaction that he compared to
“Microsoft taking over Yahoo — that conversation has never come up,” Mr.
Semel said. “[We discussed] search, and Microsoft co-owning some of our
search. I will not sell a piece of search. It is like selling your right arm
while keeping your left — it does not make any sense.”
Indeed, Mr. Semel’s less-than-flattering comments about Microsoft made an
alliance between the two companies seem even more unlikely. “My impartial
advice to Microsoft is that you have no chance,” he said. “The search business
has been formed.” He also suggested that Yahoo employees might chafe under
If Microsoft now actually buys Yahoo, some might say they had the last laugh.
But then again, it is to some degree an acknowledgment that Microsoft did need
Yahoo, after all.
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.
Microsoft has developed a plan and process that will include the
employees of both companies to focus on the integration of the combined
business. Microsoft intends to offer significant retention packages to
Yahoo! engineers, key leaders and employees across all disciplines.
What’s going to happen? It’s not clear that Yahoo will necessarily say
yes. Suddenly, the offer makes the company look much more valuable. In addition,
AOL, IAC, and potentially Google could make offers. Ironically, if Google were to
do so, no doubt a huge anti-trust uproar would emerge. But Microsoft, with such
a smaller share of search and online advertising, is likely to escape such
As said, we’ll be updating throughout the day and cross-linking to a separate
post when the planned
conference call happens at 8:30am Eastern time.
Postscript: For more on the Microsoft bid for Yahoo, also see our
- Live Blogging
Microsoft’s Bid For Yahoo Call
- Microsoft Call:
"We Love The Yahoo Brand" [But Can The Deal Happen?]
- MSFT + YHOO: What
Would Microsoft Yahoo Look Like?
- Q&A With Microsoft
On Proposed Yahoo Purchase: 2+2 = #1
- Microsoft + Yahoo:
(Some images used under license from Shutterstock.com.)
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