Byron Acohido
USA Today
A Times Square news ticker flashes a headline about Microsoft above a billboard for Yahoo.
REDMOND, Wash. — Microsoft Friday made an unsolicited takeover offer of $44.6 billion for Internet portal Yahoo in a bold bid to leapfrog Google as the dominant player in the fast emerging Internet advertising market.
Yahoo’s senior executives and board of directors played coy, issuing a statement that the company will “carefully and promptly” study Microsoft’s bid.
“We’ve made a great offer to Yahoo shareholders and we respect the fact that their management and board have a lot to consider,” said Kevin Johnson, Microsoft’s president of platform and services, in an interview. “Our strong preference is working collaboratively with Yahoo.”
Microsoft’s offer of $31 a share for Yahoo stock — a 62% premium to Yahoo’s closing stock price Thursday — should get the attention of disgruntled Yahoo shareholders. Yahoo’s share price dropped to a four-year low earlier this week, and a new management team has not said much publicly about how they intend to compete against Microsoft and Google through 2008.
The announcement sent Yahoo’s share price surging, while Google’s fell sharply; Microsoft shares slipped.
“Microsoft’s MSN properties and Yahoo are very similar, and Yahoo makes wide use of Microsoft technology, so the merger technically shouldn’t be that difficult,” says tech analyst Rob Enderle, of the Enderle Group. The merger could make the combined companies “a force to be reckoned with and prevent Google for obtaining nearly unlimited monopoly power,” he says.
In a letter to Yahoo’s board of directors, Microsoft Chief Executive Steve Ballmer revealed that Yahoo had rebuffed a previous overture a year ago, saying it had a turnaround in the works. But he pointedly noted that Yahoo’s situation since then has deteriorated significantly.
“A year has gone by, and the competitive situation has not improved,” Ballmer said.
Microsoft’s previous offer was rebuffed by Terry Semel, who stepped aside last year as chief executive under pressure from shareholders.
Microsoft sent its latest takeover offer to Yahoo late Thursday, shortly after Semel resigned as the company’s chairman. The letter is addressed to Semel’s successors, Chairman Roy Bostock and the current CEO, co-founder Jerry Yang, who is also 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 share holders, as well as create a more efficient and competitive company that would provide greater value and service to our customers,” Ballmer wrote.
Under terms of the proposed deal, Yahoo shareholders could choose to receive cash or Microsoft common shares, with the total purchase consisting of 50% each cash and stock.
Microsoft said it sees at least $1 billion in cost savings generated by the merger, and it intends to offer significant retention packages to Yahoo engineers, key leaders and employees. The software giant says it believes the takeover would receive regulatory clearance and close in the second half of this year.
The Justice Department responded to the proposed deal, saying it is “interested” in reviewing antitrust issues associated with such a merger.
If the deal goes through, analysts expect scrutiny from Congress, Justice and other enforcement agencies, but they say any concerns about search engine or online advertising market power may not be significant enough to stop the transaction.
Sen. Herb Kohl, D-Wis., chairman of the Senate antitrust subcommittee, said the same issues that prompted lawmakers to review the Google-DoubleClick deal exist in a potential Microsoft-Yahoo combination, including examining how it affects consumers, advertisers and businesses “who increasingly use the Internet for their news, commerce and entertainment.”
If Yahoo accepts Microsoft’s offer, the subcommittee expects to hold hearings to “explore the competitive and privacy implications of the deal,” Kohl said.
