Microsoft's Failed Attempt to Acquire Yahoo

Résumé du document

When Microsoft made its public bid on February 1st 2008, it surprised many investors. Even if Microsoft's interest in Yahoo had been rumored for a while, Yahoo was actually facing hard times. With the value of Yahoo's stock declining over the last few months, restructuration and lay-offs were expected and Yahoo became suddenly less appealing. However, when the media announced the possible acquisition of Yahoo by Microsoft, it immediately raised questions about synergies, whether or not the deal would be accepted by the regulators and Google's reaction. Combining Microsoft and Yahoo's search engines would become Google's biggest challenge for years to come. Yahoo has also failed so far to convert its 130 million monthly visitors into paying customers. Microsoft could bring about an expertise for this purpose and help Yahoo to do so. Here are the main questions that will be discussed in this report:
• Why is Microsoft interested in Yahoo?
• On which terms will Microsoft acquire Yahoo?
• Will Google try to block this acquisition through regulatory conflicts or other means?
• Will the regulatory authorities allow this acquisition to occur?
• Is it likely that Yahoo shareholders will seek to obtain a higher price from Microsoft?
• Will negotiations restart in 2009?

Extraits

[...] One way Microsoft could compete against Google would be to put Office online. However, Microsoft would cannibalize activities that generate profit margins of more than 60%. Even if this strategy may be a good one for the long-term, it is viewed as too risky by the Microsoft's corporate board. Acquiring Yahoo would be a good way to deviate the attention of Google and prepare a counter-attack based on both companies' strengths. Microsoft recently increased its ad revenues of 40%. Yahoo is well-known for its content and a vast unique number of visitors but has failed to generate real paying customers even if 87% of Yahoo's revenue comes from advertising. [...]

[...] However, Microsoft had no intention to raise its bid. According to Microsoft's spokesman, there was no reason to bid against them and that the time was on their side. Although Microsoft's road shows had a mixed success, the company argued that the economic downturn made the bid more appealing. Besides, even if people close to Microsoft said that it didn't plan to replace Yahoo's current directors, investors were not convinced at all. Microsoft wondered if it would be a good idea to launch a proxy fight in order to oust the current board and replace it with more friendly directors. [...]

[...] Rather than taking a major risk by combining all activities of both companies, Ms Bartz may also try to merge with Microsoft in a specific region such as Europe, where neither company has a dominant position. Bibliography Microsoft Memo Looks to Ease Staff Concerns on Yahoo Bid. February 23rd http://proquest.umi.com.dax.lib.unf.edu/pqdweb?index=10&did=1433693361&SrchM ode=1&sid=3&Fmt=3&VInst=PROD&VType=PQD&RQT=309&VName=PQD&TS=1239457877&clien tId=16748 Memo Microsoft's Yahoo Gambit. February 5th http://proquest.umi.com.dax.lib.unf.edu/pqdweb?index=18&did=1423831001&SrchM ode=1&sid=3&Fmt=3&VInst=PROD&VType=PQD&RQT=309&VName=PQD&TS=1239457877&clien tId=16748 Microsoft Unlikely to Raise Yahoo Offer; Suitor Feels It Can Wait Amid Weak Economy, Doubt Over Others' Bids. April 1st http://proquest.umi.com.dax.lib.unf.edu/pqdweb?index=3&did=1454778361&SrchMo de=1&sid=1&Fmt=3&VInst=PROD&VType=PQD&RQT=309&VName=PQD&TS=1239460178&client Id=16748 Microsoft, Yahoo Hold Talks About Partnership. April 11th http://online.wsj.com/article/SB123937960877408815.html Bartz Eases Some Hurdles to Yahoo-Microsoft Deal. [...]

[...] At the beginning of April, Microsoft gave 3 weeks to Yahoo to give its decisions. However, Yahoo rejected the bid. On May 3rd, Steve Ballmer met the CEO of Yahoo, Jerry Yang, and proposed a final bid of $33 a share which represents about billion more than the first bid. Yahoo rejected the bid one more time. Consecutively, Ballmer called off the negotiations The recent appointment of Carol Bartz as a Yahoo Chief executive on January 2009 was seen as a sign of a possible restart of talks between Yahoo and Microsoft. [...]

[...] Microsoft is actually dealing with other important issues. The company announced on January 22nd that it will lay off 5,000 workers. Microsoft is also actively working on its next operating system Windows 7 that will be released on January 2010. The current recession also makes it also more difficult to value Yahoo search business because of an uncertain advertising outlook. The purpose of Microsoft-Yahoo merger The purpose of the merger is actually to compete against Google's main strength, the ad business. [...]