Print This Post

Microsoft and Yahoo: The Deal That Wasn’t

no thanksSteve Ballmer said the deal would happen if the circumstances were right, that it wouldn’t if they were wrong.  He said walking away was an option.  He wasn’t kidding. 

Shocking many analysts who predicted a deal was likely or, at the least, a hostile takeover was the next step if no agreement was reached, Microsoft pulled the plug on their efforts to acquire Yahoo.

The reversal followed a face to face meeting in Seattle between Steve Ballmer and Jerry Yang, Saturday morning.  People familiar with the negotiations said Microsoft had increased its offer to $33, a share ($47.5 billion) but that Yahoo was unwilling to accept anything less than $37.

“After careful consideration, we believe the economics demanded by Yahoo do not make sense for us,” Ballmer said in a statement.  He also added that going to a hostile takeover would not have been “sensible.”(Full text of the Goodbye Letters can be found here)

Yahoo’s exploratory collaboration with Google on search related advertising was cited as one area of trouble undermining an agreement, price notwithstanding.  Sources also indicate that institutional shareholder pressure may have been a factor too.   As has been previously reported (and can be seen in the graphic(click to enlarge)),yhoo msft shareholders Yahoo and Microsoft share a number of mutual ‘friends’; there was tremendous overlap between each company’s lists of largest institutional shareholders.  Any prolonged takeover effort could have had a substantial negative impact on these investors combined holdings. The Shareholders were pushing for a fast resolution, or no deal at all.

Some are speculating Microsoft’s withdrawal now may only be an intermediate step in a soap opera with another act still to come.  According to the logic, Microsoft’s withdrawal will likely cause a noticeable drop in Yahoo’s current stock price.    If Yahoo’s strategic plan can’t return that value in the coming months, shareholder pressure could drive Yahoo’s board back to the Redmond bargaining table. While such a path is possible, and not unprecedented – it would borrow from the playbook Oracle used in acquiring BEA – it’s not likely.  

Per Ballmer’s letter, “Clearly a deal is not meant to be.”

For the foreseeable future, the companies will go it alone – that’s a victory for rival Google, a sigh of relief for Yahoos, and likely a victory (in the near term) for Microsoft stockholders whose upside has been temporarily handcuffed with deal uncertainty. 


Related Articles
The Official Goodbye Letters
Still Waiting, the Ultimatum that Wasn’t
Yahoo’s Big Test: Q1 Earnings Results In
MSFT Earnings: Numbers Ok, Future a Little Hazy
Yahoo Microsoft, Two Fateful Days in April
Yahoo to Microsoft: Still Not Interested, unless the Price Rises
Microsoft’s Ultimatum: 3 Weeks or Proxy Fight (Letter Reprint)
Microsoft and Yahoo In the Clouds: An Alternate Theory of the Deal
News Corp and Yahoo: Possible but not Probable
Microsoft Bids for Yahoo: Aims for Internet Powerhouse
Dear Yahoos: We Say No To Microsoft
Dear Jerry, Microsoft’s Letter to Yahoo
Yahoo to Reject Bid?: What’s Next if it Happens
Yahoo Q4 Earnings
Bill Gates CES Forecast of the Future
Microsoft and Viacom Tie Up Advertising

Comments are closed.