Yahoo Rejects Joint Microsoft/Icahn Deal But Open To $33 Per Share All-Microsoft Sale

Microsoft has once again put in an offer to buy Yahoo’s search assets – and once again been rejected. The latest offer was a joint one made by Microsoft and Carl Icahn. Yahoo slammed what it described was a “take it or leave it” offer and the one day deadline that came with it. But interestingly, Yahoo now says it would sell the entire company to Microsoft for $33 per share, the amount Microsoft was willing to pay in May but Yahoo had rejected as too low.

From Yahoo’s statement:

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

In short, the deal would have given Yahoo’s search business to Microsoft while the remaining parts of Yahoo would have been in Icahn’s control. Yahoo’s existing board would be replaced and top management removed.

Yahoo’s statement said it rejected the proposal because it felt it had a better deal with Google; a sale wouldn’t allow all of Yahoo to be sold for a "full and fair price" and Icahn’s replacement board wouldn’t have the experience to run what remained of Yahoo.

At this point, you might be feeling lost about just how many times Microsoft has tried to get Yahoo this year. Here’s a short recap:

• First Offer – Microsoft Buys All Of Yahoo (Jan-May): Microsoft made an offer to buy all of Yahoo on January 31, which wa rejected about two weeks later. Microsoft countered that it would pursue a hostile takeover if necessary and called its proposal "full and fair." By April, Microsoft gave Yahoo a three week deadline to accept its proposal. For its part, Yahoo started evaluating a paid search deal with Google. Meanwhile, Yahoo and Microsoft started negotiating a higher price for Yahoo. But the price wasn’t high enough for Yahoo, and Microsoft pulled the offer in May.
   
• Second Offer – Microsoft Buys Yahoo Search (June): Yahoo continued to negotiate a paid search deal with Google, while Carl Icahn started buying shares of Yahoo to launch a fight for control of the company. The general idea was that he’d get a new board in that would favor a deal with Microsoft — that is, if Microsoft were still interested in Yahoo. And Microsoft was interested, given that it started talking directly to Yahoo. This time, it wanted just Yahoo’s search assets. In the end, Yahoo chose to work with Google instead, keeping its search business but also carrying Google ads in addition to its own. Yahoo’s Google & Microsoft Deals, Side-By-Side explains both offers Yahoo considered in some detail.
   
• Third Offer – Microsoft Buys Yahoo Search; Icahn Takes Control Of Yahoo (July): As covered above, Microsoft would get Yahoo’s search assets while Icahn would run Yahoo.

At this point, I have to wonder why Microsoft doesn’t go back and offer Yahoo the price it wants for the entire company, keep the search portion, and divest the rest to Icahn. Crucially, Yahoo apparently offered the entire company for $33 per share, which was what Microsoft was willing to pay in May (rather than trying to get the $37 per share that Yahoo wanted):

Yahoo!’s Board points out that a transaction to acquire the whole company would be much more straightforward and involve far less risk than the new proposal or any similar alternative. The Board believes a whole company transaction could be negotiated and executed prior to August 1st. In rejecting the Microsoft/Icahn proposal, Yahoo! not only repeated its offer to sell the entire Company to Microsoft for at least $33 per share, but also offered to negotiate an improved search only transaction. Microsoft rejected both offers.

Certainly the repeated hammering at Yahoo might bring its share price down, making the deal less costly. However, Microsoft has already wasted months of time that would have been better spent on the complicated integration it would still have to complete if it owned Yahoo. It still has more time to burn as it waits to see if Yahoo’s board survives its August 1 shareholder meeting. If the board stays on, then Microsoft may waste more months continuing to seek Yahoo’s search assets (as this point, I think it’s fair to say the company just isn’t going to give up). If the board does go, there’s still all the time to be spent getting legal approval of the merger.

All this is time that leaves Microsoft weaker, since the limbo state of what it is doing in search continues while Google gets stronger. That $5 billion that Microsoft’s Steve Ballmer thought was too much for Yahoo back in May could turn out to have been very cheap indeed. But then again, Yahoo now looks a bit desperate by effectively saying that Microsoft’s $33 per share bid was actually good enough.

Desperate or not — I’d like to see Microsoft step up and take the offer rather than see this dysfunctional mating dance continue.

For more, see related discussion on Techmeme.