Microsoft walks: Five reasons why it's a good move

Microsoft walks: Five reasons why it's a good move

Summary: Microsoft CEO Steve Ballmer made the right call. He walked away from Yahoo.

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Microsoft CEO Steve Ballmer made the right call. He walked away from Yahoo.

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Last ditch talks about a friendly merger between Microsoft and Yahoo unraveled when Yahoo wouldn't budge from an asking price of $37, $4 a share more than Microsoft was willing to pay (Techmeme). Given the options, Ballmer could have paid up only to lose his shareholders and employees, launched a proxy war that would have been a disaster or walk away, an outcome that just a few days ago was unthinkable.

Ballmer chose door No. 3 and walked. The Yahoo deal (blog focus, News.com roundup) was set up to define his career and I gotta hand it to him for choosing the do-nothing option. Is this deal over? Perhaps. If Yahoo falls to $20 a share (think about those fellows who doubled down) perhaps $31 a share will look wonderful. But for now that concern is Yahoo CEO Jerry Yang's. Yang will have to answer to shareholders now.

On Saturday, Ballmer sent Yahoo a Dear Jerry letter:

In our conversations this week, we conveyed our willingness to raise our offer to $33.00 per share, reflecting again our belief in this collective opportunity. This increase would have added approximately another $5 billion of value to your shareholders, compared to the current value of our initial offer. It also would have reflected a premium of over 70 percent compared to the price at which your stock closed on January 31. Yet it has proven insufficient, as your final position insisted on Microsoft paying yet another $5 billion or more, or at least another $4 per share above our $33.00 offer.

Mary Jo Foley noted that the move "restores my faith in the future of the company." For days, Mary Jo was told that her thesis that Microsoft should walk was too girlie. After all, this Yahoo bid was war. It was about testosterone. The reality: This Microhoo saga was about opportunity cost. How could Microsoft better spend its $44.6 billion?

Yahoo Chairman Roy Bostock issued a statement noting that Yahoo is "focused on maximizing shareholder value." Try explaining that one on Monday at market open. Yang added:

"With the distraction of Microsoft's unsolicited proposal now behind us, we will be able to focus all of our energies on executing the most important transition in our history so that we can maximize our potential to the benefit of our shareholders, employees, partners and users."

The ultimate analysis of Ballmer's move to walk away, however, goes beyond price. If it weren't for other moving parts perhaps Microsoft would have paid up for Yahoo. Realistically, a higher bid just didn't make sense. Here are five reasons that contributed to Microsoft's decision to walk:

The EU and regulator scrutiny. Let's state the facts: The EU hates Microsoft, which repeatedly finds itself in the antitrust crosshairs. The EU will stand in the way of the Yahoo purchase and ultimately decide whether the acquisition proceeds. Now we can debate whether the EU is correct or not until we're blue in the face, but the EU would have determined whether Ballmer's Microhoo vision actually became reality. Microsoft faced an uphill battle with regulators--and China could have been a factor because of Yahoo's stake in Alibaba.

Divestitures. Given the regulator scrutiny Microsoft would have faced some serious divestiture decisions. Would regulators care if Microhoo dominates that free email market? Yahoo Mail and Hotmail would have had the market locked up. How about IM? MSN Messenger meets Yahoo Messenger would be dominant. Would hooks to Yahoo from Windows be forbidden?

Backend integration. Microsoft and Yahoo come from two different worlds. MSN is about Microsoft infrastructure on the front and backend. Yahoo is about Hadoop, open source and creating a network of properties that's open to developers. How exactly do you bridge that gap? Do you have to? The integration was a migraine waiting to happen.

Portfolio management. Microhoo would have had at least two of everything--ad networks, dashboards, online Office suites, photo, news and video sites, search tools etc. How would that have been rationalized?

Windows. Narrowing this list down to five items wasn't easy. Culture, morale and a dozen of other items could have made the cut. But I think the distraction factor was huge. Windows needs work. Vista has image problems. The operating system is under attack from multiple fronts and needs to become more lightweight and modular. Windows is what made Microsoft and there are serious questions about its future. The biggest knock on this entire Microhoo saga: It was a distraction that could take focus away from the real cash cow. If you think the negotiations were a distraction just imagine how dealing with regulators and integrating Yahoo would have diverted attention. Despite all the Microhoo chatter Windows 7 (all resources) may be the thing that determines whether Microsoft stays relevant or not.

Topics: Banking, Enterprise Software, Microsoft, Operating Systems, Software, Windows, Social Enterprise

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168 comments
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  • EC hating MIcrosoft?

    Nah, bureaucracies don't hate, they just use their system to grind people into compliance with their expectations. It's not their fault Microsoft chose to fight the system.
    zkiwi
    • Message has been deleted.

      fr0thy2
      • That's a Joke. (with a capital "J".)

        When the EC levies sanctions against a European company, then I'll believe they understand the value of a free market. If no European company is leading or dominant in any industry, that tells you all you need to know about the European system.
        hickum
        • EU isn't about Megalomania (with a capital "J")

          MS isn't about free markets and competition (which the free markets need to thrive). MS is about US megalomania, and it's all grinding to a halt.

          The harder you more, the more we'll push back.

          Google are fine, BTW, as they haven't turned the home computing experience into an endless stream of paying for Noddyware. And they've got something else SPOT ON - companies pay for their services, but the home user doesn't.
          fr0thy2
          • The EU needs to get a grip. A bunch of

            children that are giving Europe business a black-eye. They are joke and viewed that way.
            ItsTheBottomLine
          • boy are you out of touch

            boy are you out of touch witht the world- it not the EU that a joke -it the USA
            dirtfarmer
          • No...the EU is about protectionism

            paraded with guise of defending so-called open markets. No, it's not any different that Washington lobbing its own weight around for U.S. interests and businesses. Small wonder no one in D.C. is [i]really[/i] breaking a sweat over the collapsing dollar.

            You should talk about war mongering...considering that if anything its you Europeans that taught us all about going to fists and guns over totally stupid reasons. Half the wars we've fought were cleaning up the messes you blokes created in the first place.

            Google may be fine to you personally, but if someone in EUrope wanted to begin a serious, for-profit search mechanism to rival the cashflow Google is currently raking in, you're deluding yourself if the EU won't try to take away a chunk of Google's sweet pie.
            flatliner
          • Ouch - true but ouch.

            of course we have been innocent of late on that one.
            ItsTheBottomLine
        • If anyone has any doubt, look at Boeing

          and the garbage the EU has tried to pull with them.
          No_Ax_to_Grind
          • Or look at Microsoft

            and the garbage they've tried to pull with everybody, and capitalizing on the fact that, back in the day, most everybody was new to computing so wouldn't know any better.

            And with all the time and money in the world, all they could come up with is Vista.

            Enjoy being American in the future, run by one or two MegaCorps.

            The rest of us will be getting on with more useful medium and long term endeavours, and you guys will be trying to buy your way in ;-)
            fr0thy2
          • As opposed to being run by the govt.

            And "you guys" will be run by one mega corp - the government. BTW, how do you like Minitel? That's all you'd have, instead of the Internet, if your governments would have had their way.
            hickum
          • It's the illusion under which you live kiddo

            Progress happens anyway, it's just that the US always want to jump all over things and monetize them, control them and pretend they created them. FOSS proves that.

            That's all.
            fr0thy2
          • EU - next Russia. Gov't running business

            Look a France - socialists can do it and the EU is as close that as possible. If our companies can't play (and they can't) then we will force you to a play at our low level.
            ItsTheBottomLine
          • Ah yes, Boeing....

            The company that even the US has fined for corrupt practices, and I think they've even had people jailed for them. Given Boeing's actions in the US and around the world, it'd be pretty bizarre if the EC wasn't on their case.

            Yes, a shining example of a virtuous and spotless company that should be above reproach and investigation. NOT!
            zkiwi
          • Ah yes, Airbus....

            Airbus. The company that has a larger share of the commercial airline market than Boeing. Ethically, as pure as the driven snow!

            "Yes, a shining example of a virtuous and spotless company that should be above reproach and investigation. NOT!"

            http://www.independent.co.uk/news/europe/insider-dealing-scandal-threatens-airbus-395920.html

            http://www.canada.com/calgaryherald/news/story.html?id=d672dfc4-5993-4f25-91d3-d5aa18e6d504&k=4397
            hickum
          • Sadly...

            That's not the point. No_Ax trots out Boeing as a company that's been hard done by, when in fact it's probably had an easy run considering its actions over its history.

            Stuff Airbus may have done wrong wasn't the point. Just because somebody else is doing something wrong, doesn't make it right for the anyone else to do wrong.
            zkiwi
          • Big money attracts the greedy

            Same as Microsoft attracts the technologically apathetic.
            fr0thy2
          • Sadly, the EU won't touch Airbus

            And its not hard to figure out why, they aren't an American company.
            No_Ax_to_Grind
          • Sadly the US won't touch Boeing or Monopolysoft

            so your point was .... ?

            The age of protectionism. Some economic philosophers predicted this a long time ago ....
            fr0thy2
          • EU - will not touch any company in Europe...

            only competitors in other countries. That is how they get to compete.
            ItsTheBottomLine