Microsoft Bids $44.6 billion for Yahoo

Unable to topple Google Inc. on its own,
Microsoft Corp. is trying to force crippled rival Yahoo Inc. into a
shotgun marriage, betting nearly $42 billion that the two companies
together will have a better chance of tackling the Internet search
leader.
Microsoft’s
audacious attempt to buy Yahoo, spelled out in an unsolicited offer
announced Friday, shows just how much Google threatens the world’s
largest software maker’s grip on how people interact with computers.
For
Yahoo, the bid represents another painful reminder of how missed
opportunities and mismanagement combined to open the door for Google to
supplant it as the Internet’s main gateway, decimating its stock price
in the process.Redmond, Wash.-based Microsoft is trying to
avoid a similar fate at Google’s hands as more people access services
and computer programs online instead of relying on packaged software
applications.
(Msnbc.com is a joint venture of Microsoft and NBC Universal.)
Although
Microsoft remains the world’s most valuable technology company, its
position will become more precarious unless it can cultivate a more
loyal Internet audience and generate more online ad revenue to
subsidize the free services taken for granted on the Internet..Microsoft is acutely aware of the upheaval
that can be caused by a pivotal shift in technology, having been the
biggest beneficiary during the 1980s and 1990s of a transition from
mainframe computers to personal computers that knocked IBM Corp. off
its pedestal.
“Microsoft has to do this deal. It’s a battle that Microsoft needs to win,” said AMR Research analyst Jonathan Yarmis.
But
there’s no guarantee that Yahoo will be willing to sell to Microsoft —
or that the deal will win the necessary approvals from antitrust
regulators in the United States and Europe if Yahoo capitulates.
Sunnyvale-based
Yahoo had little to say Friday beyond a terse statement assuring its
shareholders that its board will “carefully and promptly” study the bid.
In
a conference call Friday, Microsoft Chief Executive Steve Ballmer
indicated he won’t take no for an answer after Yahoo rebuffed takeover
overtures a year ago.
“This
is a decision we have — and I have — thought long and hard about,”
Ballmer said. “We are confident it’s the right path for Microsoft and
Yahoo.”
Yahoo will
likely face intense pressure to accept, given its steadily sliding
profits and a murky 2008 outlook that caused its stock price to drop to
a four-year low earlier this week.
Microsoft’s
$31-per-share offer — $44.6 billion — represented a 62 percent premium
to Yahoo’s closing price late Thursday, although it’s below Yahoo’s
52-week high of $34.08 reached less than four months ago. On Friday,
the total value of the cash-and-stock deal fell to $41.7 billion, or
$28.95 per share, because Microsoft’s shares declined on the news.Yahoo shares soared to asplit-adjusted high of $118.75 in 2000 before
the dot-com bust. That peak coincidentally also was just before Yahoo
gave Google its first big break by hiring it to run its search engine.
Search engines are crucial tools because they have become a central hub in hugely profitable ad networks.
Advertisers
around the world are expected to double their spending on the Internet
during the next three years as more people get their news and
entertainment on the Web instead of television, radio, newspapers and
magazines. The trend is expected to create an $80 billion online ad
market in 2010, up from an estimated $40 billion last year.
After
realizing how much money Google was making from search, Yahoo
introduced its own technology in 2004, but by then it was too little,
too late.
Forrester
Research analyst Charlene Li expects Yahoo to resist, predicting the
company “will do everything possible to stay independent,” even if it
means swallowing its pride and rehiring Google to run its search engine
and sell ads on its site..Other analysts still think Yahoo might try to
line up a white knight rather than fall into Microsoft’s clutches.
Analysts mentioned several other potential suitors, including News
Corp. and InterActiveCorp.
Dinosaur
Securities analyst David Garrity even thinks it’s possible that China’s
search leader, Baidu.com Inc., or Chinese e-commerce conglomerate
Alibaba.com Inc. might bid for Yahoo. Alibaba.com is 40 percent owned
by Yahoo.
In what
most analysts regard as a long shot, there was even some chatter that
longtime Microsoft rival Apple Inc. and its CEO, Steve Jobs, might come
to Yahoo’s rescue..If push comes to shove, most analysts believe Microsoft will raise its cash-and-stock bid.
Investors
appear confident an agreement eventually will be reached. Yahoo shares
climbed $9.20, or nearly 48 percent, to $28.38 while Microsoft shares
fell $2.15, or 6.6 percent, to $30.45 — a sign that Wall Street is
skeptical about whether the acquisition makes sense.
“It’s
a classic case of a buyer overbidding to blow any potential competitors
out of the water,” said James Owers, a Georgia State University
professor of corporate finance.
Shortly
after Microsoft disclosed its intentions, the U.S. Justice Department
said it is “interested” in reviewing antitrust issues. European Union
officials declined to comment, but analysts said Microsoft probably
will face more challenges getting a Yahoo acquisition approved in
Europe than the United States..Microsoft made its offer a few hours after
Yahoo’s chairman, Terry Semel, stepped down, removing a potential
stumbling block. Semel had rejected Microsoft’s takeover overtures a
year ago while he was still Yahoo’s chief executive, according to a
letter released Friday.
Yahoo
co-founder Jerry Yang replaced Semel as CEO nearly eight months ago
while another Yahoo director, Roy Bostock, is now chairman..Yang, a billionaire who is one of Yahoo’s largest shareholders, isn’t
believed to have warm and fuzzy feelings about Microsoft. He has openly
expressed his admiration for Jobs and last year even invited the Apple
CEO to Yahoo’s headquarters for a pep talk with employees.
.Microsoft believes its technological expertise
will be a good fit with Yahoo’s knack for providing content and
services that keep people coming back to its site. Combined, the two
companies would reach a U.S. online audience of 142 million compared
with 124 million for Google, according to Nielsen Online.
But
Yahoo and Microsoft are so far behind Google in the lucrative search
market that they still will have a lot of ground to make up even if
they joined forces.
Google
already controls 62 percent of the worldwide search market, and has
been widening its lead, according to the latest data from comScore
Media Metrix. By combining, Microsoft and Yahoo would have a 16 percent
share of the worldwide search market, the Web traffic tracking company
said.
Google
shares fell $48.40, or 8.6 percent, to close at $515.90 Friday, but the
downturn appeared to be driven more by a disappointing fourth-quarter
earnings report than by Microsoft’s bid for Yahoo.
Besides
helping to boost its online ad revenue, Microsoft believes it could
mine more profit from Yahoo by jettisoning workers and eliminating
overlapping operations.
Microsoft
said it sees at least $1 billion in cost savings if it buys Yahoo.
Microsoft executives deflected questions about how many jobs might be
lost, but the company emphasized retention packages will be offered to
Yahoo engineers and other key employees, including some executives.
The
fate of Yahoo’s brand also is unclear if Microsoft takes over. Both
Ballmer and Kevin Johnson, president of Microsoft’s platforms and
services division, hailed Yahoo’s strong brand value but did not commit
to keeping the name alive..