Official: Yahoo Says No To Microsoft

The weekend rumor becomes reality. Yahoo has rejected Microsoft’s offer,
saying it undervalues Yahoo. From the

release:

Yahoo! Board of Directors Says Microsoft’s Proposal Substantially
Undervalues Yahoo!

SUNNYVALE, Calif., Feb 11, 2008 (BUSINESS WIRE) — Yahoo! Inc.
(Nasdaq:YHOO), a leading global Internet company, today said the Yahoo! Board
of Directors has carefully reviewed Microsoft’s unsolicited proposal with
Yahoo!’s management team and financial and legal advisors and has unanimously
concluded that the proposal is not in the best interests of Yahoo! and our
stockholders.

After careful evaluation, the Board believes that Microsoft’s proposal
substantially undervalues Yahoo! including our global brand, large worldwide
audience, significant recent investments in advertising platforms and future
growth prospects, free cash flow and earnings potential, as well as our
substantial unconsolidated investments. The Board of Directors is continually
evaluating all of its strategic options in the context of the rapidly evolving
industry environment and we remain committed to pursuing initiatives that
maximize value for all stockholders.

Goldman, Sachs & Co., Lehman Brothers and Moelis & Company are acting as
financial advisors to Yahoo!. Skadden, Arps, Slate, Meagher & Flom LLP is
acting as legal advisor to Yahoo!, and Munger Tolles & Olson LLP is acting as
counsel to the outside directors of Yahoo!.

See WSJ: Yahoo Plans
To Reject Microsoft’s Offer for more about how the news emerged over the
weekend and Not So
Crazy: Yahoo May Partner With AOL To Escape Microsoft on the latest rumor
that Yahoo’s going to try and tie things together with AOL. Also see related discussion on Techmeme here.

Postscript: Yahoo CEO Jerry Yang’s

email to Yahoo employees on the rejection:

yahoos

as you’ll see from the news release we issued today, our board of directors
has reviewed microsoft’s unsolicited proposal with yahoo!’s management,
financial and legal advisors. after a careful evaluation, the board has
unanimously concluded that the proposal is not in the best interests of yahoo!
and our stockholders. of course, the board of directors is continuously
evaluating all of its strategic options in the context of the rapidly evolving
industry environment and we remain committed to pursuing initiatives that
maximize value for stockholders.

we believe microsoft’s proposal substantially undervalues yahoo!—including our
highly recognizable global brand, large worldwide audience, significant recent
investments in advertising platforms, future growth prospects, our ability to
generate free cash flow and our earnings potential as well as substantial
unconsolidated investments (like alibaba and yahoo! japan).

you deserve the credit for the tremendously valuable business we have built.
all of us in management, as well as the members of the board, deeply
appreciate and respect what you have done and continue to do in order to
maintain and enhance yahoo!’s leadership position in the online world.

we have been very deliberate about the steps we are taking to position yahoo!.
we are putting in place the pieces we need to accelerate growth by becoming a
leading starting point for users and the must buy for advertisers. the global
online advertising market is projected to grow from $45 billion in 2007 to
$75 billion in 2010, and our more focused strategies position us to capture an
even larger share of this market. we are moving to take advantage of this
unique window of time in the growth of the online advertising market to build
market share and to create value for stockholders.

several key assets form a solid foundation as we execute this strategy.

first, our global brand is a tremendous base from which to build leadership as
the starting point for internet use: yahoo! is one of the most recognizable
and admired brands in the world. we have some 500 million users (1 out of
every 2 internet users worldwide). in the u.s., we are #1 in personalized home
pages, mail, music, news, sports, shopping and travel. yahoo! also is #1 in
time spent on our sites, an increasingly important metric for marketers.

second, our substantial operating cash flow, which we expect to grow in the
double digits in 2009, gives us the financial flexibility to execute our
plans.

third, we have made important investments in our core computing infrastructure
that provides us greater scalability and increases the rate of iteration on
core technologies like algorithmic search as much as tenfold. and of course, you’re familiar with our investments in enhanced search technology through panama.

these assets—the brand, the audience, the financial strength, and the
technology—position us to capitalize on this pivotal moment for yahoo! and
the online marketplace. of course, our most important resource is you: the
thousands of creative, passionate and committed yahoos who are executing our
strategies to deliver value for users, advertisers, publishers—and
stockholders.

as you know, we have taken significant steps to refocus our business on our
starting point—must buy strategies. and we’re making headway.

starting points: our goal is to grow visits to key yahoo! starting
points and properties, by approximately 15% per year over the next several
years. and we’re on the move: we are the most visited site in the u.s., and
the number of u.s. users grew strongly in the double-digits in 2007 on our
yahoo.com home page alone. as our open platform takes shape it will
significantly accelerate that growth.

mobile, as an area of focus, is the biggest emerging starting point in the
world. with twice as many mobile users as personal computer users and
projections for substantial advertising growth in mobile, we have an
important competitive edge as the number one mobile destination in the u.s.
and we are building a superior mobile experience for yahoo! users to further
capitalize on this opportunity.

must buy: at the same time, we will increasingly make online
advertising easier and more effective for marketers, opening up new ways for
them to address consumers. our right media exchange, acquired last year, is
more open and easy to use, simplifying transactions for buyers and sellers
of online ad inventory. another 2007 acquisition, blue lithium, brings us
best in class performance marketing. while we’ve historically tracked the
success of our ad business by focusing on metrics related to our owned and
operated sites, our goal is to increase the percentage of the total online
advertising demand we touch—to 20% of our addressable market over the next
several years, from an estimated 15% in 2007.

our newspaper consortium, is a great example. it has grown to more than 600
newspapers, up from just 264 just seven months ago. combined with ebay,
comcast, at&t and others, we are creating a valuable, unique network of
premium sites to serve our advertisers.

our key strategies will be enhanced by our adoption of platforms that
welcome third party developers and encourage new applications that will
enrich the user experience.