Steve Ballmer's $44.6bn letter to Yahoo!

Summary:I love you...

I love you...

Microsoft today made a $44.6bn offer for web giant Yahoo!, valuing the company 62 per cent higher than its latest stock value.

According to Microsoft, the bid is intended to better position the two companies in the online world - presumably to take on Google.

Below is an unedited copy of the proposal letter sent by Microsoft CEO Steve Ballmer to Yahoo!'s board of directors and CEO Jerry Yang:

Dear Members of the Board:

I am writing on behalf of the Board of Directors of Microsoft to make a proposal for a business combination of Microsoft and Yahoo!. Under our proposal, Microsoft would acquire all of the outstanding shares of Yahoo! common stock for per share consideration of $31 based on Microsoft's closing share price on January 31, 2008, payable in the form of $31 in cash or 0.9509 of a share of Microsoft common stock. Microsoft would provide each Yahoo! shareholder with the ability to choose whether to receive the consideration in cash or Microsoft common stock, subject to pro-ration so that in the aggregate one-half of the Yahoo! common shares will be exchanged for shares of Microsoft common stock and one-half of the Yahoo! common shares will be converted into the right to receive cash. Our proposal is not subject to any financing condition.

Our proposal represents a 62% premium above the closing price of Yahoo! common stock of $19.18 on January 31, 2008. The implied premium for the operating assets of the company clearly is considerably greater when adjusted for the minority, non-controlled assets and cash. By whatever financial measure you use - EBITDA, free cash flow, operating cash flow, net income, or analyst target prices - this proposal represents a compelling value realization event for your shareholders.

Agenda Setters 2007 - Top 20

Find out who made it into's Agenda Setters top 20 by clicking on the links below…

1. Mark Zuckerberg Facebook
2. Steve Jobs Apple
3. Eric Schmidt Google
4. John Chambers Cisco
5. Ashley Highfield BBC
6. Nicholas Negroponte OLPC
7. Niklas Zennström Skype
8. Diane Greene VMware
9. Jonathan Ive Apple
10.Viviane Reding EC
11.Paul Coby British Airways
12.Marc Benioff
13.Emily Bell Guardian Unlimited
14.Larry Ellison Oracle
15.Jeff Bezos Amazon
16.Ben Verwaayen BT
17.Nandan Nilekani Infosys
18.David Yu Betfair
19.Satoru Iwata Nintendo
20.Mark Hurd HP

We believe that Microsoft common stock represents a very attractive investment opportunity for Yahoo!'s shareholders. Microsoft has generated revenue growth of 15%, earnings growth of 26%, and a return on equity of 35% on average for the last three years. Microsoft's share price has generated shareholder returns of 8% during the last one year period and 28% during the last three year period, significantly outperforming the S&P 500. It is our view that Microsoft has significant potential upside given the continued solid growth in our core businesses, the recent launch of Windows Vista, and other strategic initiatives.

Microsoft's consistent belief has been that the combination of Microsoft and Yahoo! clearly represents the best way to deliver maximum value to our respective shareholders, as well as create a more efficient and competitive company that would provide greater value and service to our customers. In late 2006 and early 2007, we jointly explored a broad range of ways in which our two companies might work together. These discussions were based on a vision that the online businesses of Microsoft and Yahoo! should be aligned in some way to create a more effective competitor in the online marketplace. We discussed a number of alternatives ranging from commercial partnerships to a merger proposal, which you rejected. While a commercial partnership may have made sense at one time, Microsoft believes that the only alternative now is the combination of Microsoft and Yahoo! that we are proposing.

In February 2007, I received a letter from your Chairman indicating the view of the Yahoo! Board that "now is not the right time from the perspective of our shareholders to enter into discussions regarding an acquisition transaction." According to that letter, the principal reason for this view was the Yahoo! Board's confidence in the "potential upside" if management successfully executed on a reformulated strategy based on certain operational initiatives, such as Project Panama, and a significant organizational realignment. A year has gone by, and the competitive situation has not improved.

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Topics: Networking

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