Dear stockholders: Please believe us, Microsoft undervalues us

Dear stockholders: Please believe us, Microsoft undervalues us

Summary: Yahoo's latest move in the end game with Microsoft is a letter to stockholders, explaining why the company is worth more than Microsoft is offering. The global online advertising market will grow from $45 billion in 2007 to $75 billion in 2010, the letter stated, and Yahoo is poised to intercept a major share of the demand.


Yahoo's latest move in the end game with Microsoft is a letter to stockholders, explaining why the company is worth more than Microsoft is offering. The global online advertising market will grow from $45 billion in 2007 to $75 billion in 2010, the letter stated, and Yahoo is poised to intercept a major share of the demand. The question is will shareholders vote for Jerry Yang or another candidate to lead the company into the future.

Following is the text of the letter:

Dear Stockholders,

On February 1, 2008, Microsoft made an unsolicited proposal to acquire your company. As much has been reported in the press recently, I wanted to reach out to you personally to let you know why your Board of Directors, after a careful review by Yahoo!'s management along with our financial and legal advisors, believes that Microsoft's proposal substantially undervalues Yahoo! and is not in the best interests of our stockholders.

Most importantly, I want you to know that your Board is continuously evaluating all of Yahoo!'s strategic options in the context of the rapidly evolving industry environment, and we remain committed to pursuing initiatives that maximize value for all our stockholders.

We have a unique combination of strengths

-- Yahoo! is one of the most recognizable and admired brands in the world. We have over 500 million users (nearly 1 out of every 2 internet users worldwide). In the U.S., we are # 1 in many of the most used online services including personalized home pages, mail, news, music, shopping and travel. Because we have leadership positions in so many indispensable online services, users spend more time on Yahoo! sites than anywhere else online.

-- Yahoo! is an attractive partner for marketers. Yahoo! is #1 in online display advertising, which represents 90% of the advertising inventory on the web, and we are also a leader in search marketing and a pioneer in the growing fields of mobile advertising and online video advertising. Through Yahoo!, advertisers can now connect with consumers on our owned sites as well as those of our growing network of partners including eBay, Comcast, AT&T, a consortium of over 600 newspapers,,, WebMD and more.

-- Yahoo! has the financial flexibility to execute our plans, thanks to our healthy cash balance, which exceeded $2 billion as of December 31, 2007, and our substantial operating cash flow, which we expect to grow double digits in 2009.

-- Yahoo! has made important investments in our core computing infrastructure enabling us to dramatically increase the speed of our search engine updates even while handling vast and growing quantities of data.

-- In addition, we have the added value of our substantial, unconsolidated investments in Japan and China. We have substantial positions in Yahoo! Japan, the leader in its market, and Alibaba, which is strongly positioned in China, a market with enormous growth potential.

These assets--our brand and its audience, our relationships with marketers, our financial strength, our technology, and our strategic investments--are the core of our value and our leadership position in the industry.

We have a huge market opportunity - and are uniquely positioned to capitalize on it

The global online advertising market is projected to grow from $45 billion in 2007 to $75 billion in 2010. And we are moving quickly to take advantage of what we see as a unique window of time in the growth - and evolution - of this market to build market share and to create value for stockholders.

We are executing our strategy - and making headway

We have taken significant but disciplined steps to refocus our business on our objectives to become the starting point for the most consumers and the must buy for the most advertisers and enhance Yahoo!'s long-term performance.

Starting Point Objective: Our goal is to grow visits to key Yahoo! starting points and properties, where users enter the Internet, by 15% per year over the next several years. We are the most visited site in the U.S., and we continue to grow - we experienced double-digit growth in U.S. users in 2007 on our home page.

In addition to traditional starting points on the PC - including our home pages, mail, My Yahoo! and search, we are particularly excited about our growth prospects in mobile, the biggest emerging starting point in the world. Globally, there are twice as many users of mobile devices as users of personal computers, and mobile advertising is projected to grow substantially in the coming years. We have an important competitive edge as the number one mobile destination in the U.S., and we are building a superior mobile experience for Yahoo! users globally so we can further capitalize on this opportunity.

Must Buy Objective: We are working to make online advertising easier and more effective for marketers, opening up new ways for them to connect with consumers. We've successfully completed the global roll-out of our search marketing system, Panama, which improved the search experience for our users, boosted returns for our advertisers, and increased revenue for Yahoo!. Last year, we bought Right Media, an exchange that enables buyers and sellers of online advertising to come together. Another 2007 acquisition, Blue Lithium, brings us best-in-class performance marketing capabilities, complementing Yahoo!'s existing offerings for advertisers. We also integrated our search advertising and display advertising sales forces, creating a one-stop shop for all of advertisers' online marketing needs. All of these - Panama, Right Media, Blue Lithium, and our combined sales efforts - complement and enhance Yahoo!'s existing capabilities and will make it easier for advertisers and online publishers to buy and sell advertising online.

We are also creating a unique and valuable network of premium websites to serve our advertisers. We are making it easier for our advertisers to provide interesting and relevant offers to our users by combining advertising space on Yahoo!'s owned sites with that from a growing group of premium partners including eBay, Comcast, AT&T, a consortium of over 600 newspapers and many others.

As we reach more users both on our own websites and on the sites of our premium partners, and better monetize the ad space on Yahoo!'s owned and operated sites, we are striving to increase the percentage of total online advertising demand we touch from an estimated 15% in 2007 to 20% over the next several years.

These key strategies will be enhanced by our adoption of new, more open technology platforms that will encourage the development of new applications and the involvement of third-party developers - and help enrich the user experience.

We have accomplished a great deal in a very short time - and we are focused on building this momentum

Today, Yahoo! is a faster-moving, better-organized, more nimble company than it was just a few months ago. We have redeployed our resources to drive Yahoo!'s key strategic priorities - taking important steps to streamline our organization and close down or scale back businesses that don't support these critical growth initiatives. The fact is that we are well on our way to transforming the experiences of Yahoo!'s users, advertisers, publishers and developers - an important shift that is at the heart of our plan to create stockholder value.

I want you to know that the Yahoo! Board of Directors and management team remain committed to pursuing initiatives that maximize value for all our Yahoo! stockholders. This is a great company and we are moving quickly to make it even better.

Jerry Yang

About Yahoo! Inc.

Topics: Social Enterprise, Microsoft

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  • enough already! They told them no!

    News must be very slow on the M$ innovation front. They told them no the past weekend, and you still beating a dead horse.

    It's like M$ was turned down for a prom date and can deal with it, just like a high school boy, not yet a man.
    • It doesn't work that way

      Yes, "they" told Microsoft no. But "they" are the Board of Directors, and the BoD doesn't own the company--the shareholders do.

      The BoD doesn't have free rein to do whatever they want; BoD's aren't allowed to refuse a buyout offer just based on personal preferences (e.g., they don't like the company that's making the offer). They can make the claim that the buyer isn't offering enough money, but that's a hard position to defend unless another buyer comes along offering more. Which may happen with News Corp, but we'll have to wait and see.
      • Wrong, you do not have to have another buyer to argue that the offer

        undervalues the company. You can argue that stockholders would get a better value in the end by staying independent than accepting a buyout.

        Of course, if the stockholders are not convinced, they can vote to replace the board and take matters into their own hands . . .

        So, if MS offers enough money, stockholders will be "convinced", and the board will likely accept the offer and put it to vote. Of course if the board still refuses, stockholders CAN replace the board, though that takes time.
        • "Wrong" About What?

          In my post, I wrote that "BoD's aren't allowed to refuse a buyout offer just based on personal preferences" and that the BoD "can make the claim that the buyer isn't offering enough money, but that's a hard position to defend unless another buyer comes along offering more."

          So just to be clear, I never said that there had to be a higher offer from another company. What I said was that it's harder to claim that the offer on the table is too low if there's not another offer.
    • I hate to see Yahoo sold, but, if MS wants to substantially overpay, in the

      end, they will get Yahoo. The board can turn them down all they want, but, if MS can convince enough Yahoo stockholders, they can get a new board of directors elected, take over Yahoo, and force the sale. In this case convince = "offer a fantastic price".

      I am not sure what price it will take to "convince" enough stockholders.

      Anyway, consumers will lose if we lose a viable Google competitor.
  • That's braindead. And it's the strategy that killed AOL.

    AOL died because it went low-end on technology in a presumed fit to a naive user base. (I say that as an insider.) Yahoo wants to repeat the same death spiral.

    I don't think any deal except Microsoft is likely to save them.

    • Well, if enough Yahoo investors are convinced, then the board WILL be

      replaced, and Yahoo WILL be sold. I imagine that MS will raise the offer and this will go through, though, a News Corp joint venture could complicate things for MS.
  • another bad option

    Don't tie to the AOL anchor and be dragged under water even further.
  • The MS way of life

    This news is just so good for the entire Internet - a stronger and profitable Yahoo (with news corp. or other), and the innovation and openness have their way into the next years. The MS way of life proves wrong one more time - just as said, MS+Yahoo=MS - the merger would simply destroy the Yahoo, and the community loses again - as the stock holders. With the Google x MS batle, Yahoo can still offer services to and profit from MS. After all, the average user/buyer of Internet services is not so dumb to not feel all this - the closed approach of MS will led to a dead end.
    green alien
  • Even more reason to take the MS deal

    If he's right it's an even better reason to take the deal. 60% premium now, and even better gains when the combined MS/YH leverages these partnerships (without the existing YH bloat and mismanagement) than YH has repeatedly proven it can ever achieve on its own. Smart money takes the deal. With it you get both the premium and the future growth opportunity outlined here is enhanced even more...
    Johnny Vegas
    • It will likely be an all cash offer in the end, so, the only question is if

      the final offer is better than the long term potential if Yahoo stays independent. THAT is the question. The projected MS/Yahoo performance after the merger will most likely be irrelevant to Yahoo stockholders in this decision.

      But, I have my doubts about Microsoft's ability to integrate Yahoo without a sever brain drain, and lots of technical problems. You also have to think about the Yahoo customers that do NOT like MS, and will switch after a takeover.
      • Excellent Points DonnieBoy

        Excellent Points DonnieBoy...

        In addition to what Donnie said... Microsoft is a target. Yahoo is currently tolerated by hackers. If MS gets Yahoo, then it will become a huge target on the web. I can't blame them for hating MS.. MS has done nasty things to the innocent masses, I have not forgiven MS for everything they have done and may still do in the future.

        If you are reading this and don't have a clue about what MS has done to the masses of innocent people.. Just take a look at the thousands of lawsuits they have lost over the years. It will paint a vivid portrait of the truth.
  • You Go Jerry! Yahoooooooooooo!

    D T Schmitz
  • Another meeting of the Monopoly Board

    Will Boardwalk be up for grabs?

    Who holds the dice?

    Got to jail. Go straight to jail. Do
    not pass go. do not collect $200.
    Ole Man
  • Letter to Stockholders from Mr. Yang

    Dear Stockholders,

    We have no choice but to accept Microsoft's offer. I don't want our company to be involved in a proxy war which will just end up Microsoft winning it by a mile. I have suggested to name the company Yahoo by Microsoft so as not to lose our identity and brand. Either way, if they insist on putting their name together with Yahoo then I am considering not MicroWho? because it is a kitchen appliance like a Microhood. I like the idea of naming it Yahoo by Microsoft or YAHMIC! This way our brand Yahoo will always be first.

    This will be a great company and we are moving quickly to make it come true.

    Billy Yang,

    YahMic! Inc.
    billy yang