Microsoft Ratchets Up Deal Pressure on Yahoo
Ballmer Threatens to Launch A Hostile Bid if Internet Firm Doesn't Agree to Merger Soon
Microsoft Corp. is turning the screws to try to force Yahoo Inc. to agree to a takeover, but Yahoo remains focused on finding an alternative.
In a letter sent Saturday to Yahoo directors, Microsoft Chief Executive Steve Ballmer threatened a hostile takeover bid for the Internet company if it doesn't agree to a merger within the next three weeks. On Sunday, Yahoo was planning a written response to the letter, saying Microsoft had failed to address antitrust concerns and other issues raised by its offer, according to people familiar with the matter. The offer is currently valued at $42.2 billion.
Yahoo's reluctance to negotiate has given some Microsoft executives a window to voice their opposition to the proposed acquisition, say people familiar with the matter. Their skepticism probably wouldn't derail a possible deal, but it could at least limit Microsoft's appetite for raising its offer, these people say.
Some in Yahoo's camp view Mr. Ballmer's latest move as a negotiating strategy, and they believe there is still time for Yahoo to pursue alternatives to an acquisition by the software giant, say people familiar with the matter. One of the people says some members of Yahoo's management would prefer not to sell to Microsoft and are still looking for another deal that would allow Yahoo to avoid that.
The company's directors were scheduled to discuss the matter Sunday, but it wasn't clear, whether they came to any new conclusions.
On Jan. 31, Microsoft offered to acquire Yahoo for $44.6 billion, or $31 a share in cash and stock Yahoo's board rejected the offer, which has sin< declined in value to $29.36 a share because of substantial drop in Microsoft's share price. In p.m. trading Friday on the Nasdaq Stock Mark Yahoo's shares were up 23 cents at $28.36, who Microsoft's traded at $29.16, up 16 cents.
Since the unsolicited offer, Yahoo has been discussing alternative arrangements with companies that including News Corp. and Time Warn Inc. People familiar with the matter say the talks with Time Warner, which center around its folding its AOL Internet unit into Yahoo in return for a significant Yahoo stake, have heated up recently. The separate Yahoo discussions with News Corp., owner of Wall Street Journal publisher Dow Jones & Co., have cooled, these people say.
It's unclear how much patience Yahoo's shareholders might have for a drawn out pursuit of non- Microsoft options, or taste for deals that might represent less-certain financial returns than Microsoft's stock-and-cash offer. But one person familiar with the matter says there is some frustration that Yahoo's delay might have caused it to lose leverage in negotiating a higher offer from Microsoft.
Microsoft has been keeping close tabs on the views of Yahoo's major shareholders and, with Saturday's letter, it appears to be betting that investors want Yahoo to begin negotiations. Microsoft believes that a recent series of presentations that Yahoo management made to investors failed to persuade them that the company is worth substantially more than what Microsoft has offered.
If Yahoo's board doesn't agree to a sale in three weeks, Microsoft would be "compelled" to take its offer directly to shareholders and wage a proxy fight to replace Yahoo's directors, Mr. Ballmer wrote in his letter to Yahoo directors. He also implied that the offer Microsoft would make after the deadline would be lower than the one now on the table.
The amount of time any hostile effort would take is unclear, because Yahoo has so-called poison pill provisions designed to thwart hostile takeovers. Microsoft would presumably have to persuade shareholders to vote for its alternative slate of directors at Yahoo's annual meeting, for which Yahoo has yet to fix a date. If elected, those pro- Microsoft directors could then remove Yahoo's poison pill and accept Microsoft's offer. Under the law in Delaware, where Yahoo is incorporated, it could be forced to hold its annual meeting if it hasn't already done so by July.
Mr. Ballmer's letter, which comes after senior executives from the two companies failed to make any headway in two separate meetings in recent weeks, may make a friendly resolution of the standoff less likely. The sharply worded letter makes no secret of Microsoft's frustration at the lack of progress and could end up alienating Yahoo's board and management, some of whom already regard the software maker with a degree of suspicion.
In his letter, Mr. Ballmer suggests that worsening economic conditions have reduced Yahoo's market value, adding that "by any fair measure, the large premium we offered in January is even more significant today." Microsoft's original $31 per share offer represented a 62% premium to where Yahoo's shares had been trading before the offer.
Many Yahoo shareholders have been holding out for a higher offer and it is unlikely they would embrace a deal for less than the original bid. Still, Mr. Ballmer's threat underscores the frustration on the part of the software maker with the lack of any progress
The offer for Yahoo has generated some opposition within Microsoft, say people familiar with the situation. The plan to bid for the company was kept secret among a limited group of executives and advisers driving the strategy. Many other Microsoft executives learned of it only after Microsoft made the offer to Yahoo's board on Jan. 31.
Drivers of the deal at Microsoft include Senior Vice President Yusuf Mehdi and Senior Vice President Hank Vigil, two executives whose roles are to map out strategy and negotiate deals; they don't manage business groups.
If a deal with Yahoo goes through, Messrs. Mehdi and Vigil stand to play key roles in guiding the integration of the companies and could have greater clout to pursue other deals.
But other Microsoft executives have been raising concerns about the risks in buying Yahoo, say people familiar with the matter. Among the issues they have raised to other Microsoft executives and outsiders is the huge challenge of merging the two companies' computer systems that handle functions such as graphical display advertisements on Web sites. The skeptics argue that Microsoft should continue to build its online systems and services - a strategy that so far has fallen short of Microsoft's expectations - and make a number of smaller acquisitions complement that effort.
Another worry among some insiders is who would lead the complex integration. Microsoft has limited experience in digesting very large acquisitions and las recently lost several executives who might have helped in that undertaking.
Such opposition, say some people, is to be expected in a deal the size that Microsoft is pursuing with Yahoo. Microsoft also has a culture that allows debate to thrive - sometimes at the expense of making timely decisions. At this point, doubts about the deal don't seem strong enough to scuttle it, say the people familiar with the matter.
"There is no dissension among the people who are making the decisions," said one person close to Microsoft. This person said top executives including Mr. Ballmer have been level-headed since the start about the challenges and risks of completing such an acquisition.
By: Kevin Delaney, Robert Guth, and Matthew Karnitschnig
Wall Street Journal; April 7, 2008
