Yahoo’s Tough Week Ahead
At around 4:30 California time today news broke that Microsoft has formerly withdrawn its offer to acquire Yahoo (see Ballmer’s email to Microsoft employees here).
Among other things, that ends a three month stock party where the market value of Yahoo jumped from about 26.2 billion to nearly $40 billion based on Microsoft’s offer to acquire Yahoo for $31/share on February 1.. That run up included a 7% gain in Yahoo’s stock price on Friday alone, based on market anticipation of a negotiated deal that would be announced on Monday.
That party began the day after Microsoft made an offer to acquire Yahoo for $31/share on February 1.
Here’s what to expect now that Microsoft has withdrawn their bid:
- Google is still a wild card, and Yahoo may be sitting with them right now to try and iron out a search outsourcing deal. Of course, Yahoo has lost most of their negotiating leverage now that Microsoft is out of the picture.
- Yahoo shares don’t trade until Monday; however, Yahoo Japan’s shares trade on the Tokyo Stock Market beginning at around 4:30 pm California time on Sunday. Yahoo Japan, which is 40% owned by Yahoo, saw a similar jump in share price around the Microsoft February 1 announcement. How it does tomorrow may be an indication of what will happen to Yahoo on Monday.
- Yahoo shares will begin trading Monday morning at 7 am EST in off-hours trading. By the time the markets open at 9:30 EST, the fate of Yahoo’s stock will have largely been determined.
- Look for a barrage of shareholder lawsuits against Yahoo next week.
Unless Yahoo pulls a very large rabbit out of a hat prior to trading on Monday, expect their share price to decline significantly. Yahoo has put in place a number of very expensive anti-takeover provisions and employee retention programs. Also, their Q1 financial results, while above expectations, were not so materially positive as to offset the hit they are going to take.
In a nutshell, Yahoo’s scorched earth strategy worked. Now they have to live with their victory.
Google Wins
Google was the big winner in a Microsoft/Yahoo acquisition attempt, no matter what the outcome. But among the possible outcomes, a broken Yahoo and a frustrated Microsoft almost certainly result in increased market share for Google.
Don’t Count Microsoft Out Just Yet
There’s a reasonable chance that Yahoo tanks this week - really tanks. It’s not inconceivable that Microsoft could come right back to the table with a lower bid than the one they just pulled off the table. Don’t count Microsoft out yet - they may still get their win.
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Email From Steve Ballmer To All Microsoft Employees
The following email was sent to all Microsoft employees from CEO Steve Ballmer at 5:17 pm PDT (see Breaking: Microsoft Withdraws Yahoo Bid; Walks Away From Deal):
From: Steve Ballmer
Date: May 3, 2008 5:17:30 PM PDT
To: “Microsoft - All Employees (QBDG)”
Subject: Withdrawal of Offer to Acquire Yahoo!
This afternoon I sent the attached letter [see update 2 here for letter to Yahoo] to Jerry Yang announcing that Microsoft has withdrawn its proposal to acquire Yahoo. We proposed the deal in the belief that a Microsoft-Yahoo merger would create a combined company with the resources and assets to win in the fast-growing market for advertising and online services.
Although the acquisition of Yahoo would have accelerated our ability to deliver on our strategy in advertising and online services, I remain confident that we can achieve our goals without Yahoo. We have a strategy in place to do so and we will continue to expand on this strategy and accelerate our progress.
Our strategy has three components:
· Deliver on the basics. We will continue to improve search relevance and build out our ad platform.
· Change the game through innovation. We will expand investments in engineering and deliver transformative tools and Web experiences.
· Expand our global scale and focus. We will pursue partnerships and investments to realize the competitive advantages that come with scale.
At the heart of our strategy is a commitment to bring the benefits of competition, choice, and innovation to everyone who uses the Internet—from consumers to content creators to advertisers.
We are 100 percent focused on executing on this strategy and we have made good progress in a very short time. We’ve improved search relevance dramatically, introduced compelling new search verticals, successfully integrated aQuantive, and added nearly 100 new publishers to our ad platform. In the last couple of months we’ve rolled out new versions of key products including Internet Explorer and Silverlight, and introduced new technologies like Live Mesh. We now have over 430 million active users of our Windows Live services worldwide. And we continue to add new technologies with acquisitions such as YaData, which brings leading-edge behavioral targeting technology, and Caligari, which gives us advanced 3D modeling capabilities that will help us continue to improve Virtual Earth.
Ultimately, our goal is to build the industry-leading business in search, online advertising, media, and social networking.
We are absolutely committed to being the leader in each of these areas. Now is the time to do what we have always done best—be tenacious, focus on the long term, innovate, and keep working hard.
I want to thank all of you for your patience during this process and for your dedication and hard work across all of our businesses. We asked that you remain focused on our goals through these cycles, and you have done this extremely well. We are committed to making the investments that will enable us to compete and, ultimately, lead in the online services and advertising businesses. Together, I know we will succeed.
Steve
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Breaking: Microsoft Withdraws Yahoo Bid; Walks Away From Deal (Updated)
Microsoft will announce shortly that they have withdrawn their offer to acquire Yahoo. Talks between the two companies and their advisors broke down earlier today, according to a source close to Microsoft, after a failure to come to agreement on price and other terms.
A final meeting occurred today at Microsoft headquarters in Redmond, between Jerry Yang and David Filo from Yahoo, and Kevin Johnson and Steve Ballmer from Microsoft. At that meeting, Yahoo said the lowest price they could accept was $37/share. Microsoft reportedly went as high as $33/share. Yang and Filo returned to California shortly after the meeting, and Yang then had a subsequent phone conversation with Ballmer. At that time Ballmer withdrew the offer.
Other facts are emerging around recent negotiations between the companies. A rough timeline:
- No meaningful talks occured between the companies until after Microsoft sent a letter to Yahoo on April 5 with a three week deadline to complete a deal.
- On April 15, execs from both companies met in Portland, Oregon to discuss valuation and integration issues.
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Following that April 15 meeting both sides signed a non disclosure agreement not to discuss any negotiations until after the April 26 deadline that Microsoft set in their April 5 letter.
- On April 18, Microsoft and Yahoo advisors had a phone conversation; Yahoo signaled a minimum price of $40/share.
- On April 29, there were multiple phone conversations between the companies; Yahoo supposedly said they would be willing to move from the $40 price and requested that Microsoft not go hostile or walk from the deal.
- On April 30 the teams met in California. Yahoo said $38 gets the deal done.
Microsoft is making it clear that this is not just a breakdown in discussions between the companies. They are withdrawing their earlier bid and are saying they will not go hostile. They’ve given up.
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Microsoft/Yahoo: No Deal Today, Markets Look For Announcement Early Monday
Talks between Microsoft and Yahoo continue as the market closes and the business week comes to an end. Every signal is that the two sides are close to finalizing a deal, somewhere between $33 and $37/share.
Microsoft has signaled that they’ll go as high as $33 this week. The alternate board members, who must be notified before any announcement of Microsoft going officially hostile, have not been contacted by Microsoft, sources say.
The market agrees, with Yahoo stock up as much as 11% today. Yahoo closed at $28.68, up about 7% for the day.
Analysts we spoke to today, emphasizing that they have no inside information, say they expect a deal to be wrapped up over the weekend and announced on Monday. Look for a cash/stock mix in the $35 range, announced before the market opens, possibly with a conference call pre-market as well.
The main reason Microsoft has changed strategies seems to be the overt willingness of Yahoo to do a search outsourcing deal with Google in the event Microsoft walks away or goes hostile. The threat is very real, and some experts say that regulatory approval of such a deal would not be as difficult as some have speculated.
See our interview with Citi Analyst Mark Mahaney from earlier this week.
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AOL, RealNetworks and Yahoo Get $100 Million Bill
A Federal Court found today that AOL, Real Networks and Yahoo owe $100million to songwriters and composers as back payment for streaming music online.
The court ruled on a request from the American Society of Composers, Authors and Publishers to establish reasonable compensation for the playing of their works. Notably ASCAP represents writers and composers and not the record industry, so the request for money is on top of any existing licensing agreements with the RIAA and its constituent members.
The court found that “reasonable license fees” are owing from AOL, RealNetworks, and Yahoo for the music streamed and distributed from their sites, retrospective to 2002, at a cost ASCAP counts at $100 million.
Unsurprisingly, ASCAP was happy with the decision:
“The Court’s finding represents a major step toward proper valuation of the music contributions of songwriters, composers and publishers to these types of online businesses - many of which have built much of their success on the foundation of the creative works of others,” said ASCAP President and Chairman and Academy Award-winning lyricist, Marilyn Bergman. “It is critical that these organizations share a reasonable portion of their sizable revenues with those of us whose content attracts audiences and, ultimately, helps to make their businesses viable. This decision will go a long way toward protecting the ability of songwriters and composers to be compensated fairly as the use of musical works online continues to grow.”
The Digital Media Association, a trade organization representing online streaming and music providers, said that the are not opposed to compensating composers and writers, but object to the model imposed by the court, with demands companies hand over 2.5% in part of all revenue as compensation, not just revenue from the music services themselves.
(in part via CNet)
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Microsoft Says They’ll Pay More
Microsoft is leaking that they are willing to increase their Yahoo bid to as much as $33 per share, up from the original $31/share offer. That original offer, which included payment in Microsoft stock, has fallen in value to just $29.12/share.
This is a surprise since Microsoft has previously stated they wouldn’t increase their bid. Analysts largely expected them to either walk from the deal or go hostile.
$33 may not be enough to get Yahoo to move the knife away from their nose, however. The WSJ says they want $35 - $37.
The people say that it’s unclear what final approach Microsoft will take, but that discussions between the two companies have been stymied by a stark divide on price. Microsoft has said privately in recent days that it’s willing to offer as much as $32 or $33 a share, well above the $29.12-a-share value of its original cash-and-stock offer as of Tuesday’s market close, these people say. But major Yahoo shareholders have signaled they want in the range of $35 to $37 a share, with Yahoo’s management and board similarly shooting for an offer in the upper $30s, they add.
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Ready To Rumble: Here’s Who Microsoft Will Bring To a Hostile Fight Over Yahoo
Microsoft does not like to be rushed. Everyone is waiting for its next move, now that the deadline it set for Yahoo to accept its takeover bid expired last Saturday. And everyone can keep waiting. Nevertheless, preparations are being made for an announcement this week from Microsoft on what it will do next.
Out of its various options, the two most likely are either to go hostile with the bid or to walk away. Chief financial officer Chris Liddell signaled as much during last weeks’ earnings conference call, where he also discounted the possibility of a higher bid:
The strongest argument that we should increase our bid because we can afford to is not one I favor. We have yet to see tangible evidence that our bid substantially undervalues the company. In fact we see the opposite.
That might have been posturing, but I don’t think so. Last week, Citi analyst Mark Mahaney put the odds of Microsoft going hostile at 40 percent, and of walking away at 10 percent. In the event of a hostile offer, Microsoft could either try to go directly to shareholders and ask them to tender their shares or engage in a proxy battle to replace Yahoo’s board of directors. A tender offer would trigger Yahoo’s poison pill and get really messy and expensive. (For an excellent discussion on how all of this would work, read Marc Andreessen’s post on the subject).
All signs point to a coming proxy battle. Microsoft has picked its alternate slate to replace Yahoo’s board of directors. And it has gathered around itself a group of advisers known for their bare-knuckle M&A tactics. Who is this group of reservoir dogs that Microsoft would bring to a fight to take over Yahoo’s board? They include:
—Morgan Stanley. Investment bankers Paul Taubman, Drew Guevara, Thomas Whayne, Chuck Cory, and Rob Kindler are on the crew assigned to Microsoft. Taubman heads up Morgan Stanley’s entire global mergers and acquisitions group (but he also had the dubious distinction of advising Time Warner on the AOL deal).
—The Blackstone Group. Jill Greenthal is advising from this high-powered investment bank that specializes in M&A, among other things.
—Joele Frank. She is the person you call when you are doing a hostile takeover and you need special public relations for the occasion. That is what she does: hostile PR. She is good and she is fierce.
—Innisfree M&A. A proxy solicitation firm that handles the logistics of a proxy battle.
These are all veteran fighters who don’t mind getting a little blood on their hands.
They’ll be up against Yahoo’s investment bankers, led by Goldman Sachs (Lehman and Moelis are also advisers). We’ve also heard a rumor that low-key M&A consulting firm MacKenzie Partners is helping Yahoo. (But judging from all the dead links on their Website, maybe it is Yahoo who should be helping them)
Watching from the sidelines will be Google, with their back-up man Frank Quattrone at Qatalyst and his old partner George Boutros at Credit Suisse.
Should Microsoft walk away or unleash its reservoir dogs?
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Updated: We Now Know 8 of Microsoft’s 12 Proposed Yahoo Board Members
In March we wrote a preliminary list of the people Microsoft will propose as the alternate board of directors in the event their acquisition efforts go hostile.
Microsoft is proposing ten new board members, plus two alternates (here’s the current board members they would replace).
The original list (we now believe Tom Freston was incorrect and has been removed):
- John Chapple - CEO, Nextel Partners
- Edward H. Meyer - Former CEO, Grey Advertising
- Jaynie Studenmund - Former CEO, eHarmony
We’re now adding the following individuals to that list based on new sources of information:
- Kenneth Goldman - Board of Directors, Infinera; former CFO and SVP for Siebel Systems
- Richard Kashnow - Board of Directors, EFI (Electronics for Imaging); former CEO of Raychem
- James Mooney - Director and Chairman at Virgin Media, also a director of Sirius Satellite Radio
- Ross Levinsohn - Former President of Fox Interactive Media; partner of Velocity Interactive Group
- Vanessa Whitman - Former CFO, Adelphia Communications
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Update: We Now Know 8 of Microsoft’s 12 Proposed Yahoo Board Members
In March we wrote a preliminary list of the people Microsoft will propose as alternate board of directors in the event their acquisition efforts go hostile.
See our recent interview with Citi analyst Mark Mahaney who discusses the probable outcomes to Microsoft’s effort.
Microsoft is proposing ten new board members, plus two alternates (here’s the current board members they would replace).
The original list (we now believe Tom Freston was incorrect and has been removed):
- John Chapple - Former CEO, Nextel Communications
- Edward H. Meyer - Former CEO, Grey Global Group
- Jaynie Studenmund - Former CEO, eHarmony
We’re now adding the following individuals to that list based on new sources of information:
- Kenneth Goldman - Board of Directors, Infinera Corporation; former CFO and SVP for Siebel Systems
- Richard Kashnow - Director, Ariba; former CEO of Raychem
- James Mooney - Director and Chairman at Virgin Media, also a director of Sirius Satellite Radio
- Ross Levinsohn - Former President of Fox Interactive Media; partner of Velocity Interactive Group
- Vanessa Whittman - Former CFO, Adelphia Communications
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JAJAH Lands 97 Million Yahoo Users
VOIP provider JAJAH has just got a welcome boost via a deal with Yahoo that will see JAJAH power premium voice on Yahoo Messenger.
Under the deal, JAJAH will provide its proprietary telephony infrastructure, payment processing, and customer care to Yahoo Messenger users using the platform for receiving calls from the PSTN network, or for making calls to land lines and mobile phones.
The announcement coincides with JAJAH moving into new territory as an indirect to consumer provider as well as its direct to market service. Yahoo is the first major U.S. technology customer/partner of JAJAH’s Managed Services and JAJAH told TechCrunch that they expect to announce new partners including landline operators, cable companies and mobile carriers in the coming weeks.
JAJAH’s existing VOIP service recently passed the 10 million user mark.
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