Microsoft Gives Up on Yahoo Takeover Bid - Desperate Moves
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You wouldn't think that Microsoft needs to wait on anyone, and one can only assume that by April 5, the software giant got tired of waiting, and of eating everyone else's dust in the search field. That's when Ballmer sent a letter to Yahoo containing a thinly-veiled threat that the company would force a shareholder vote in an end run around Yahoo's management if the two companies could not reach an agreement in three weeks. Meanwhile, both Microsoft and Yahoo tried negotiating for help from News Corp and AOL. Microsoft wanted help in its purchase bid, while Yahoo tried desperately to stay out of Microsoft's clutches. Yahoo went to a number of other potential partners, in fact, looking for some kind of deal.
At this point, things begin to read a little like a political thriller. The two companies held secret meetings in mid-April where they discussed "social issues," according to the New York Times, "like who would run the Yahoo unit if it were folded into Microsoft." No agreements were reached at that time. Three days later, bankers for Yahoo hammered home the point that Microsoft's $31 per share bid was too low by publicly suggesting that $40 a share would be appropriate.
Microsoft's deadline passed with the company refusing to raise its bid. On the other hand, the proxy contest and other hostilities that Microsoft threatened failed to materialize. Yang apparently held Ballmer off in several phone conversations in which he suggested that Yahoo would consider less than $40 a share. So negotiations continued, then turned serious, with Ballmer flying out to Yahoo headquarters, bankers and lawyers blazing.
Apparently it all came down to numbers. Yang wanted $38 per share. Ballmer said he would pay no more than $33 per share. This was not pocket change; each dollar per share represents $1.4 billion in terms of the full bid. The two CEOs held a final meeting on Saturday at Microsoft headquarters. Yang backed down to $37 per share, but Ballmer refused to increase his company's bid any further.
Just hours later, in fact, Ballmer sent Yang a letter that has been circulating online, outlining his company's refusal to pursue the bid any further. In it, Ballmer describes the bids, pointing out that Microsoft's final bid would have offered a 70 percent premium over the price at which Yahoo's stock closed on January 31. Microsoft walked when Yahoo wanted another $5 billion over the company's final bid. Ballmer also acknowledged that taking the bid directly to the shareholders "would necessarily involve a protracted proxy contest and...in the interim, you would take steps that would make Yahoo! Undesirable as a acquisition for Microsoft."
Ballmer is referring to Yahoo's recent experiment with Google to outsource "key paid Internet search terms" -- or, in other words, letting Google handle some of Yahoo's paid search advertising. Ballmer points out a number of disadvantages to that approach, including undermining Yahoo's own long-term strategy vis a vis its Panama advertising platform. One can only assume the move on Yahoo's part was desperate enough to make Microsoft withdraw its bid completely, because that's exactly what happened.
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