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Microsoft walked away from a bid to acquire Yahoo when its increased, $45-plus billion offer was rebuffed by the pioneering Internet company as not enough by half.
The surprise Saturday announcement came after a week of tense negotiations and about three months after Microsoft informed Yahoo that it intended to buy it, the better to compete with internet ad behemoth Google.
"Despite our best efforts, including raising our bid by roughly $5
billion, Yahoo! has not moved toward accepting our offer. 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," said Steve Ballmer, CEO of Microsoft in a prepared statement.
The announcement came week after a deadline for an agreement passed -- the date by which time Microsoft threatened to launch a hostile bid if a deal was not set in place.
Microsoft's decision to walk will hardly put an end to the drama, though. Ballmer's note to Yahoo CEO Jerry Yang explicitly expresses concern about a deal between Google and Yahoo and its affect on competition, essentially ringing the alarm bells for antitrust regulators.
"This would also effectively enable Google to set the prices for key search terms on both their and your search platforms and, in the process, raise prices charged to advertisers on Yahoo. In addition to whatever resulting legal problems, this seems unwise from a business perspective unless in fact one simply wishes to use this as a vehicle to exit the paid search business in favor of Google, Ballmer wrote in his letter.
He also set the stage for shareholder lawsuits, complaining that
Yahoo's financial demands were unreasonable. Ballmer said that
Microsoft was willing to go up to $33 per share, effectively offering another $5 billion in value to shareholders, but that Yahoo's board insisted on another $5 billion, or at least another $4 per share, bringing the offer up to $37 per share.
"I still believe even today that our offer remains the only alternative put forward that provides your stockholders full and fair value for their shares. By failing to reach an agreement with us, you and your stockholders have left significant value on the table .... But clearly a deal is not to be," Ballmer wrote.
In response to Microsoft's decision to withdraw its offer, Yahoo expressed no regret.
"From the beginning of this process, our independent board and our management have been steadfast in our belief that Microsoft's offer undervalued the company and we are pleased that so many of our shareholders joined us in expressing that view," said Roy Bostock, chairman of Yahoo, in a prepared statement.
It may not be quite as simple as that. Reuters quoted Laura Martin, a senior analyst at Soleil Securities, as saying that Yahoo was asking too much. Martin said she expected Yahoo shares to plummet $8 on Monday -- that's in the neighborhood of 27 percent -- and a number of shareholder lawsuits to be filed.
"The Yahoo guys want too much money for their company. We think $33 a share is fair in the context of the weakening economic environment and adverse advertising trends," Martin, who has a "hold" rating on Yahoo, told Reuters.
The bid was, from the very beginning, an extremely contentious move. Rumor was that Microsoft talked to Yahoo about a $40 per share deal last year, which explains Yahoo's reluctance to settle for an offer significantly lower. And many industry insiders questioned the reasoning behind a hostile bid.
"For a merger to work, you have to have good business strategy, a strong operating model with good numbers, and the best people to execute on that model," said Hewlett-Packard CEO Mark Hurd, at a symposium at Castilleja, a private girls school in Palo Alto, earlier today. "With Microsoft and Yahoo, you've got two cultures with very different values and strategies. . . Friendly deals are hard enough to get done. Unfriendly deals are really, really hard to get done."
And although Microsoft blames Yahoo for its unwillingness to negotiate,this was, in reality, never a deal Microsoft's own shareholders could get behind: Since Microsoft first went public with its bid on Feb. 1, shares have fallen 10 percent.
Photo: Sorbo Robert/Corbis
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