OMEN
04-29-2008, 12:34 PM
Yahoo Inc. failed to agree to an acquisition deal with Microsoft Corp. by Saturday, the deadline Microsoft had set for wrapping up negotiations.
Now Microsoft must decide whether to pursue a hostile takeover via a proxy fight or to drop the bid and seek other acquisition alternatives.
All along, Microsoft's management had strongly indicated that it would pursue Yahoo via all available options, including the hostile route of ousting the current board by proposing its own slate of director candidates at the next Yahoo shareholders' meeting.
But Microsoft CEO Steve Ballmer and Chief Financial Officer Chris Liddell softened that stance in public comments last week, saying that giving up on the acquisition would also be an option.
On Sunday, Yahoo declined to comment. Microsoft responded by pointing to comments Liddell made on Thursday during Microsoft's earnings announcement.
"Unless we make progress with Yahoo towards an agreement by this weekend, we will reconsider our alternatives. We will provide updates as appropriate next week ... these alternatives clearly including taking an offer to the Yahoo shareholders, or to withdraw our proposal and focus on other opportunities, both organic and inorganic," Liddell said then.
Citing anonymous sources, The Wall Street Journal reported Sunday that Microsoft, Yahoo and their advisers have held talks in recent weeks but didn't achieve enough progress to hammer out a deal by Saturday.
The process has clearly been frustrating for Microsoft executives, who have maintained that their offer is fair and that they don't see a reason to revise it. Ballmer and his team have shown signs of getting impatient with the slow progress, which is not surprising considering Microsoft's urgent desire to boost its underperforming Internet business and to better compete against Google Inc.
Launching a proxy fight would prolong the acquisition process even further and make the fight even nastier. Even if Microsoft were to win, it would not be a good start to what would be an arduous and lengthy postacquisition integration process.
In the meantime, Google would no doubt seek to capitalize on the internal turmoil within Microsoft and Yahoo by trying to poach clients and valuable employees.
As soon as Microsoft announced its bid for Yahoo on Feb. 1 -- valued at $44.6 billion at the time -- Yahoo's management began seeking and considering alternatives, while its stock began to rise from the latest prebid price of $19.18.
By the time Yahoo's board formally rejected the unsolicited offer on Feb. 11, saying it undervalued the company, Yahoo's stock price had risen to $29.87, erasing the offer's premium. The next day, Microsoft hinted in a letter to Yahoo that it wouldn't shy away from attempting a hostile takeover.
Since the bid's announcement, Yahoo CEO and co-founder Jerry Yang has held conversations with various companies including Google, AOL, Disney and News Corp., exploring alternative deals that would strengthen Yahoo's business and relieve the pressure on it to be acquired.
On April 5, Microsoft, clearly impatient, threatened Yahoo's board of directors with a proxy battle if it wouldn't agree to a buyout in the next three weeks. That's the deadline that lapsed on Saturday.
No alternative deal has materialized for Yahoo, except for a very limited, albeit eyebrow-raising, test that saw Yahoo run Google ads along with some search engine results on Yahoo.com. Observers speculated that the test, announced on April 9, could lead to a full-blown outsourcing of Yahoo's search ad business to Google, a move that financial analysts believe could boost Yahoo's revenue.
Yahoo also has made overt maneuvers to buy itself time. For example, on March 5, Yahoo lifted the following week's deadline for nominating directors to its board, an attempt to discourage Microsoft from launching a proxy fight to replace the current board with members willing to approve its Yahoo acquisition bid. Yahoo hasn't yet set a date for its shareholders' meeting.
On March 18, Yahoo kicked off a tour to investors by dusting off a three-month-old financial plan to reinforce its contention that Yahoo is worth much more than Microsoft offered to pay for it. The plan, originally presented to Yahoo's board in December, predicts that Yahoo will double its operating cash flow over the next three years from $1.9 billion to $3.7 billion. The plan also forecasts that, subtracting the commission that Yahoo pays to sites in its advertising network, Yahoo will generate $8.8 billion in revenue in 2010. Financial analysts agreed that the plan is highly optimistic.
Yahoo also has been in hyperactive mode with product and strategy announcements since Microsoft's bid, always pointing out that each initiative proved that it is able to improve its situation as an independent company. For example, it acquired online video player Maven Networks Inc., announced its social network OneConnect mobile service, relaunched its video site and introduced Yahoo Buzz, a social news site that has been well received.
It also announced AMP, a new advertising management platform that it says will greatly simplify buying and selling ads online. Yahoo plans to roll out AMP in phases starting in 2008's third quarter and continuing into 2009. The company also added video to Flickr and joined Google's OpenSocial project of common application programming interfaces for social networking applications.
Last week, Yahoo announced its most ambitious plan yet to take advantage of the popularity of social networking. Yahoo Open Strategy calls for the company to swing wide open the doors of its Web platforms to let outside developers create applications across its network of sites, starting with its search engine via a beta project called Search Monkey.
Also last week, Yahoo reported 2008 first-quarter earnings that were considered solid, although not stellar, and that Yang said prove the company is in the rebound. Yahoo grew its revenue and net income and exceeded Wall Street's expectations for both categories.
Of course, there have been also reminders of why Yahoo found itself an acquisition target. The most concrete was on Feb. 12 when Yahoo, as it had been planning to do, started laying off about 1,000 staffers, and prominent executives like Bradley Horowitz, vice president of product strategy, voluntarily gave up on the company and left, in Horowitz's case to rival Google.
Compworld
Now Microsoft must decide whether to pursue a hostile takeover via a proxy fight or to drop the bid and seek other acquisition alternatives.
All along, Microsoft's management had strongly indicated that it would pursue Yahoo via all available options, including the hostile route of ousting the current board by proposing its own slate of director candidates at the next Yahoo shareholders' meeting.
But Microsoft CEO Steve Ballmer and Chief Financial Officer Chris Liddell softened that stance in public comments last week, saying that giving up on the acquisition would also be an option.
On Sunday, Yahoo declined to comment. Microsoft responded by pointing to comments Liddell made on Thursday during Microsoft's earnings announcement.
"Unless we make progress with Yahoo towards an agreement by this weekend, we will reconsider our alternatives. We will provide updates as appropriate next week ... these alternatives clearly including taking an offer to the Yahoo shareholders, or to withdraw our proposal and focus on other opportunities, both organic and inorganic," Liddell said then.
Citing anonymous sources, The Wall Street Journal reported Sunday that Microsoft, Yahoo and their advisers have held talks in recent weeks but didn't achieve enough progress to hammer out a deal by Saturday.
The process has clearly been frustrating for Microsoft executives, who have maintained that their offer is fair and that they don't see a reason to revise it. Ballmer and his team have shown signs of getting impatient with the slow progress, which is not surprising considering Microsoft's urgent desire to boost its underperforming Internet business and to better compete against Google Inc.
Launching a proxy fight would prolong the acquisition process even further and make the fight even nastier. Even if Microsoft were to win, it would not be a good start to what would be an arduous and lengthy postacquisition integration process.
In the meantime, Google would no doubt seek to capitalize on the internal turmoil within Microsoft and Yahoo by trying to poach clients and valuable employees.
As soon as Microsoft announced its bid for Yahoo on Feb. 1 -- valued at $44.6 billion at the time -- Yahoo's management began seeking and considering alternatives, while its stock began to rise from the latest prebid price of $19.18.
By the time Yahoo's board formally rejected the unsolicited offer on Feb. 11, saying it undervalued the company, Yahoo's stock price had risen to $29.87, erasing the offer's premium. The next day, Microsoft hinted in a letter to Yahoo that it wouldn't shy away from attempting a hostile takeover.
Since the bid's announcement, Yahoo CEO and co-founder Jerry Yang has held conversations with various companies including Google, AOL, Disney and News Corp., exploring alternative deals that would strengthen Yahoo's business and relieve the pressure on it to be acquired.
On April 5, Microsoft, clearly impatient, threatened Yahoo's board of directors with a proxy battle if it wouldn't agree to a buyout in the next three weeks. That's the deadline that lapsed on Saturday.
No alternative deal has materialized for Yahoo, except for a very limited, albeit eyebrow-raising, test that saw Yahoo run Google ads along with some search engine results on Yahoo.com. Observers speculated that the test, announced on April 9, could lead to a full-blown outsourcing of Yahoo's search ad business to Google, a move that financial analysts believe could boost Yahoo's revenue.
Yahoo also has made overt maneuvers to buy itself time. For example, on March 5, Yahoo lifted the following week's deadline for nominating directors to its board, an attempt to discourage Microsoft from launching a proxy fight to replace the current board with members willing to approve its Yahoo acquisition bid. Yahoo hasn't yet set a date for its shareholders' meeting.
On March 18, Yahoo kicked off a tour to investors by dusting off a three-month-old financial plan to reinforce its contention that Yahoo is worth much more than Microsoft offered to pay for it. The plan, originally presented to Yahoo's board in December, predicts that Yahoo will double its operating cash flow over the next three years from $1.9 billion to $3.7 billion. The plan also forecasts that, subtracting the commission that Yahoo pays to sites in its advertising network, Yahoo will generate $8.8 billion in revenue in 2010. Financial analysts agreed that the plan is highly optimistic.
Yahoo also has been in hyperactive mode with product and strategy announcements since Microsoft's bid, always pointing out that each initiative proved that it is able to improve its situation as an independent company. For example, it acquired online video player Maven Networks Inc., announced its social network OneConnect mobile service, relaunched its video site and introduced Yahoo Buzz, a social news site that has been well received.
It also announced AMP, a new advertising management platform that it says will greatly simplify buying and selling ads online. Yahoo plans to roll out AMP in phases starting in 2008's third quarter and continuing into 2009. The company also added video to Flickr and joined Google's OpenSocial project of common application programming interfaces for social networking applications.
Last week, Yahoo announced its most ambitious plan yet to take advantage of the popularity of social networking. Yahoo Open Strategy calls for the company to swing wide open the doors of its Web platforms to let outside developers create applications across its network of sites, starting with its search engine via a beta project called Search Monkey.
Also last week, Yahoo reported 2008 first-quarter earnings that were considered solid, although not stellar, and that Yang said prove the company is in the rebound. Yahoo grew its revenue and net income and exceeded Wall Street's expectations for both categories.
Of course, there have been also reminders of why Yahoo found itself an acquisition target. The most concrete was on Feb. 12 when Yahoo, as it had been planning to do, started laying off about 1,000 staffers, and prominent executives like Bradley Horowitz, vice president of product strategy, voluntarily gave up on the company and left, in Horowitz's case to rival Google.
Compworld