Yahoo rejects Microsoft offer again
April 9, 2008
Jerry Yang is CEO of Yahoo
The board of directors of Yahoo Inc. once again rejected Microsoft Corp.’s $44.6 billion offer to acquire the online media giant.
Yahoo CEO Jerry Yang sent the rejection letter on behalf of the board in response to one written by Micorosoft CEO Steve Ballmer over the weekend. In his letter, Mr. Ballmer urges Yahoo to accept the Microsoft offer, but Mr. Yang’s letter outlines why the proposal is not in the best interests of Yahoo and its stockholders.
“Our board cited Yahoo's global brand, large worldwide audience, significant recent investments in advertising platforms and future growth prospects, free cash flow and earnings potential, as well as its substantial unconsolidated investments, as factors in its decision,” Mr. Yang’s letter to Mr. Ballmer says.
“At the same time, we have continued to make clear that we are not opposed to a transaction with Microsoft if it is in the best interests of our stockholders,” the letter says. “Our position is simply that any transaction must be at a value that fully reflects the value of Yahoo, including any strategic benefits to Microsoft and on terms that provide certainty to our stockholders.”
Since its initial rejection of Microsoft’s proposal, Yahoo presented its three-year financial and strategic plan to its stockholders, which supports that the proposal substantially undervalues Yahoo.
Yahoo claims that it has continued to launch new products and has leveraged its scale, technology, people and platforms, which have all boosted its value.
“Our board's view of your proposal has not changed,” the letter to Mr. Ballmer says. “We continue to believe that your proposal is not in the best interests of Yahoo and our stockholders.
“Contrary to statements in your letter, stockholders representing a significant portion of our outstanding shares have indicated to us that your proposal substantially undervalues Yahoo. Furthermore, as a result of the decrease in your own stock price, the value of your proposal today is significantly lower than it was when you made your initial proposal.
In his letter, Mr. Ballmer said the transaction has tremendous benefits for Yahoo’s shareholders and employees. He stated that rejecting the deal would be passing up a great opportunity.
Yahoo’s letter makes it quite clear that the company does not agree.
"The steps we’ve been taking over the course of the past year represent profound, fundamental changes to virtually every aspect of Yahoo’s business and we're confident they will help us drive our next leg of growth and gain future ad market share,” said Sue Decker, president of Yahoo, to stockholders during Yahoo’s first-quarter financial report.
“Even as we increase investment in key areas of our business, we’re making tough but necessary decisions to streamline our organization and redeploy assets to our most promising technology and marketing initiatives,” Ms. Decker said.
“We still have a tremendous amount of work to do, but we’re confident we can substantially improve our users' experiences and achieve meaningful incremental monetization opportunities for Yahoo’s own ad inventory and that of our partners.”
Additionally, Yahoo’s three-year financial and strategic plan, in which the online company promised to foster the mobile ecosystem and extend its leadership in mobile, increases the company’s value as well (see story).
The Internet giant has spent the past three years aggressively rolling out offerings targeted at addressing key needs of the mobile ecosystem.
Yahoo’s mobile homepage, oneSearch, oneSearch 2.0, oneConnect and onePlace are some examples of Yahoo’s recent mobile initiatives.
“This plan has received positive feedback from our stockholders, further strengthening the view that Yahoo is worth well more as a standalone company than the value offered in your proposal, and would be even more valuable to Microsoft,” the letter to Mr. Ballmer says. “Your own statements have made clear the strategic importance of Yahoo's substantial assets and capabilities to Microsoft.”
In Mr. Ballmer’s letter over the weekend, he threatened to begin an unsolicited offer and proxy contest to displace the Yahoo independent board members. In its reply, Yahoo said that it feels that Mr. Ballmer’s threat is “counterproductive and inconsistent” with Microsoft’s stated objective of a friendly transaction.
“We are open to all alternatives that maximize stockholder value,” Yahoo said in its letter. “To be clear, this includes a transaction with Microsoft if it represents a price that fully recognizes the value of Yahoo on a standalone basis and to Microsoft, is superior to our other alternatives, and provides certainty of value and certainty of closing.
“Lastly, we are steadfast in our commitment to choosing a path that maximizes stockholder value and we will not allow you or anyone else to acquire the company for anything less than its full value,” it said.
Industry observers have had mixed reviews on whether or not Yahoo will eventually accept Microsoft's offer.
"Given the messiness of a full out merger – and also the limited benefit it would bring to Yahoo – I believe that a merger won’t be in the works anytime soon," said Charlene Li, analyst at Forrester Research, in her blog.
"More logical would be partnership agreements where the strengths of each company are shared," she said. "These tentative first steps to a merger would make a lot more sense, giving both companies the ability to 'test the waters' before jumping into the deep end."