Microsoft Withdraws Yahoo! Offer

REDMOND, May 5: This past
weekend, Microsoft withdrew its proposal to acquire Yahoo!, after a $5-billion
increase in purchase price failed to pique the interest of the search engine
giant.

The move sent Yahoo!
shares plummeting today and caused a rally in Microsoft shares, with some
investors pleased to see that the company did not pursue a hostile takeover
bid, as originally anticipated.

“We continue to believe
that our proposed acquisition made sense for Microsoft, Yahoo! and the market
as a whole,” said Steve Ballmer, Microsoft’s CEO. “Our goal in pursuing a
combination with Yahoo! was to provide greater choice and innovation in the
marketplace and create real value for our respective stockholders and
employees. Despite our best efforts, including raising our bid by roughly $5
billion, Yahoo! has not moved toward accepting our offer. After careful
consideration, we believe the economics demanded by Yahoo! do not make sense
for us, and it is in the best interests of Microsoft stockholders, employees
and other stakeholders to withdraw our proposal.”

Microsoft first approached
Yahoo!’s CEO, Jerry Yang, with a proposal in late January. Spurned for being
too low, the offer was last week upped to $33 per share. “This increase would
have added approximately another $5 billion of value to your shareholders,
compared to the current value of our initial offer,” Ballmer said in a letter
to Yang. “It also would have reflected a premium of over 70 percent compared to
the price at which your stock closed on January 31. Yet it has proven
insufficient, as your final position insisted on Microsoft paying yet another
$5 billion or more, or at least another $4 per share above our $33 offer.”

Ballmer continued in the
letter to Yang: “After giving this week’s conversations further thought, it is
clear to me that it is not sensible for Microsoft to take our offer directly to
your shareholders. This approach would necessarily involve a protracted proxy
contest and eventually an exchange offer. Our discussions with you have led us
to conclude that, in the interim, you would take steps that would make Yahoo!
undesirable as an acquisition for Microsoft. We regard with particular concern
your apparent planning to respond to a ‘hostile’ bid by pursuing a new
arrangement that would involve or lead to the outsourcing to Google of key paid
Internet search terms offered by Yahoo! today.”

Microsoft noted that such
an agreement would make the takeover of Yahoo! “undesirable” for a number of
reasons. “First, it would fundamentally undermine Yahoo!’s own strategy and
long-term viability by encouraging advertisers to use Google as opposed to your
Panama paid search system…. In addition, it would raise a host of regulatory
and legal problems that no acquirer, including Microsoft, would want to
inherit. Among other things, this would consolidate market share with the
already-dominant paid search provider in a manner that would reduce competition
and choice in the marketplace. This would also effectively enable Google to set
the prices for key search terms on both their and your search platforms and, in
the process, raise prices charged to advertisers on Yahoo!”

—By Mansha Daswani