Microsoft Corp. has pounced on slumping Internet icon Yahoo Inc. with an unsolicited takeover offer of US$44.6 billion in its boldest bid yet to challenge Google Inc.’s dominance of the lucrative online search and advertising markets.
The surprise offer of $31 per share, announced Friday, comes with Yahoo in a vulnerable position. In a statement Friday, Yahoo said it will “carefully and promptly” study Microsoft’s bid.
Assuming Yahoo accepts the offer, the deal could be good news for advertisers even though it could mean a reduction in the total number of online outlets, said Andrew Goodman, a principal at online and search marketing specialists Page Zero Media in Toronto. “I do like the idea of competition, but the problem is that the competition is less right now because it is too weak.”
Neither Microsoft or Yahoo pose a real threat to Google at the moment, he said. But together they may have the scale to offer advertisers a meaningful option to the undisputed search engine champion of the world.
“They’ll still be number two, but I think it provides for the marketplace some opportunities, some leverage and better products,” he said.
With its profits steadily sliding, Yahoo’s stock slipped to a four-year low earlier this week, and a new management team has been trying to steer a turnaround but sees more turbulence through 2008.
The announcement sent Yahoo’s share price up 60% in premarket trading, while Google fell 8%, weighed down by a fourth-quarter earnings report that missed Wall Street expectations (see “Google fears no recession…” below).
In a letter to Yahoo’s board of directors, Microsoft CEO Steve Ballmer said the world’s largest software maker is determined to bring the two companies together.
To underscore its resolve, Microsoft is offering a 62% premium to Yahoo’s closing stock price Thursday.
Since reaching a 52-week high of $34.08 in October, Yahoo shares have fallen 46%. Yahoo climbed $10.40 a share, or 54%, to $29.58 in premarket trading. Microsoft shares fell $1.40, or 4.3%, to $31.20.
Ballmer revealed in the letter that Yahoo rebuffed a previous overture a year ago, saying it had a turnaround in the works. But he pointedly noted Yahoo has instead deteriorated significantly.
“A year has gone by, and the competitive situation has not improved,” Ballmer added.
Microsoft’s previous offer was rebuffed by Terry Semel, who stepped aside last year as chief executive under shareholder pressure.
Microsoft sent its latest takeover offer to Yahoo late Thursday, shortly after Semel resigned as chairman. The letter is addressed to Semel’s successors, new chairman Roy Bostock and the current CEO, co-founder Jerry Yang, who is one of Yahoo’s largest shareholders.
“Microsoft’s consistent belief has been that the combination of Microsoft and Yahoo clearly represents the best way to deliver maximum value to our respective shareholders, as well as create a more efficient and competitive company that would provide greater value and service to our customers,” Ballmer wrote.
In a prepared statement, Yahoo said its board “will evaluate this proposal carefully and promptly in the context of Yahoo’s strategic plans and pursue the best course of action to maximize long-term value for shareholders.”
Under terms of the proposed deal, Yahoo shareholders could choose to receive cash or Microsoft common shares, with the total purchase consisting of 50% cash and 50% stock.
Microsoft said it sees at least $1 billion in cost savings generated by the combination, and intends to offer significant retention packages to Yahoo engineers, key leaders and employees. The software giant said it believes the takeover would receive regulatory clearance and close in the second half of 2008.
Signalling Microsoft doesn’t intend to take no for an answer, Ballmer wrote that the company “reserves the right to pursue all necessary steps to ensure that Yahoo’s shareholders are provided with the opportunity to realize the value inherent in our proposal.”
While Yahoo is struggling, Microsoft is thriving, last week forecasting a rosy 2008—despite broader economic worries—after it blew by Wall Street’s expectations for a second consecutive quarter.
