Yang hits back at Ballmer; mentions antitrust concerns

Yang hits back at Ballmer; mentions antitrust concerns

Summary: That didn't take long. Two days after Microsoft CEO Steve Ballmer sent a three-week acquisition ultimatum to Yahoo's board, Yahoo answered with its own letter.

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That didn't take long. Two days after Microsoft CEO Steve Ballmer sent a three-week acquisition ultimatum to Yahoo's board, Yahoo answered with its own letter.

Signed by CEO Jerry Yang and Chairman of Yahoo Board Roy Bostock, the Yahoo letter reiterated that Yahoo feels Microsoft's $44 billion fee is too low. The pair claimed their recently disclosed three-year financial plan demonstrated to shareholders and others that Yahoo is well-positioned for growth -- a view that a number of Wall Street analysts and industry observers have not shared.

"We have continued to make clear that we are not opposed to a transaction with Microsoft if it is in the best interests of our stockholders," Yang and Bostock said.

(If Yahoo's behavior since Microsoft's January 31 bid became public can be considered "non-oppositional," I'd hate to see what Yang would do if he was really dead-set against something. It's no secret how much Yang and many Yahoos hate Microsoft and would do almost anything to avoid Redmond's clutches.)

The part of the new Yahoo letter I found most interesting, though, was the mention of antitrust issues that would arise if the acquisition goes through -- something that neither Microsoft nor Yahoo has spent much time discussing publicly. From the letter:

"As to antitrust, we have discussed with you our concerns. Any transaction between us would result in a thorough regulatory review in multiple jurisdictions. As a follow up to a recent meeting among our respective legal advisors we had on this topic, and at your request, we provided to you on March 28 a list of additional information we would need to further our understanding of the regulatory issues associated with any transaction. To date, you have still not provided any of the requested information."

I wonder what's on that list... Any guesses?

Meanwhile, here's the full text of the Yang/Bostock letter to Ballmer:

Dear Steve:

Our Board has reviewed your most recent letter with regard to the unsolicited proposal you made to acquire Yahoo! on January 31, 2008.

Our Board carefully considered your unsolicited proposal, unanimously concluded that it was not in the best interests of Yahoo! and our stockholders, and rejected it publicly on February 11, 2008. Our Board cited Yahoo!'s global brand, large worldwide audience, significant recent investments in advertising platforms and future growth prospects, free cash flow and earnings potential, as well as its substantial unconsolidated investments, as factors in its decision.

At the same time, we have continued to make clear that we are not opposed to a transaction with Microsoft if it is in the best interests of our stockholders. Our position is simply that any transaction must be at a value that fully reflects the value of Yahoo!, including any strategic benefits to Microsoft, and on terms that provide certainty to our stockholders.

Since disclosing our Board's position with respect to your proposal, we have presented our three-year financial and strategic plan to our stockholders, which supports our Board's determination that your unsolicited proposal substantially undervalues Yahoo!. Those meetings with our stockholders have also provided us an opportunity to hear their views.

We have continued to launch new products and to take actions which leverage our scale, technology, people and platforms as we execute on the strategy we publicly articulated. Today, in fact, we are announcing AMP! from Yahoo!, a new advertising management platform designed to dramatically simplify the process of buying and selling ads online.

Finally, our Board has been actively and expeditiously exploring our strategic alternatives to maximize stockholder value, a process which is ongoing. All of these actions have been driven by our overarching commitment to maximize stockholder value.

Our Board's view of your proposal has not changed. We continue to believe that your proposal is not in the best interests of Yahoo! and our stockholders. Contrary to statements in your letter, stockholders representing a significant portion of our outstanding shares have indicated to us that your proposal substantially undervalues Yahoo!. Furthermore, as a result of the decrease in your own stock price, the value of your proposal today is significantly lower than it was when you made your initial proposal.

In contrast to your assertions about the effect of general economic conditions on our business, Yahoo!'s business forecasts are consistent with what we outlined in our last earnings call. As you know, we recently reaffirmed our Q1 and full year guidance, which is a testament to our ability to perform in line with our expectations despite the current economic environment. In addition, our three-year financial and strategic plan which we have made public demonstrates significant potential upside not previously communicated to the financial markets. This plan has received positive feedback from our stockholders, further strengthening the view that Yahoo! is worth well more as a standalone company than the value offered in your proposal, and would be even more valuable to Microsoft. Your own statements have made clear the strategic importance of Yahoo!'s substantial assets and capabilities to Microsoft.

We regret to say that your letter mischaracterizes the nature of our discussions with you. We have had constructive conversations together regarding a variety of topics, including integration and regulatory issues. Your comment that we have refused to enter into negotiations to conclude an agreement are particularly curious given we have already rejected your initial proposal, nominally $31 per share at the time, for substantially undervaluing Yahoo! and your suggestions in your letter and the media that you are considering lowering the value of your proposal. Moreover, Steve, you personally attended two of these meetings and could have advanced discussions in any way you saw fit.

As to antitrust, we have discussed with you our concerns. Any transaction between us would result in a thorough regulatory review in multiple jurisdictions. As a follow up to a recent meeting among our respective legal advisors we had on this topic, and at your request, we provided to you on March 28 a list of additional information we would need to further our understanding of the regulatory issues associated with any transaction. To date, you have still not provided any of the requested information.

We consider your threat to commence an unsolicited offer and proxy contest to displace our independent Board members to be counterproductive and inconsistent with your stated objective of a friendly transaction. We are confident that our stockholders understand that our independent Board is best positioned to objectively and knowledgeably evaluate our Company's alternatives and to maximize value.

In conclusion, please allow us to restate our position, so there can be no confusion. We are open to all alternatives that maximize stockholder value. To be clear, this includes a transaction with Microsoft if it represents a price that fully recognizes the value of Yahoo! on a standalone basis and to Microsoft, is superior to our other alternatives, and provides certainty of value and certainty of closing. Lastly, we are steadfast in our commitment to choosing a path that maximizes stockholder value and we will not allow you or anyone else to acquire the company for anything less than its full valueVery truly yours,

Roy Bostock Chairman of the Board

Jerry Yang Chief Executive Officer

Topics: Social Enterprise, CXO, Enterprise Software, Legal, Microsoft, Security

About

Mary Jo has covered the tech industry for 30 years for a variety of publications and Web sites, and is a frequent guest on radio, TV and podcasts, speaking about all things Microsoft-related. She is the author of Microsoft 2.0: How Microsoft plans to stay relevant in the post-Gates era (John Wiley & Sons, 2008).

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27 comments
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  • Yahoo and investors just have to be patient.

    No reason for them to get in a hurry. Yes, MS is in a hurry, SO WHAT???
    DonnieBoy
    • But MS will not raise the offer, so investors should be worried

      as a takeover would leave many on the outside with no voting power over their own investment.
      GuidingLight
      • Progressives should be worried

        and so should anyone who cares about anything except stock prices.

        If MSFT acquires Yahoo, Yahoo will lose its value, but so will MSFT because lots and lots of people will just jump ship - yup, those very people that Microsoft is trying to buy.

        You'll never actually hear "officially" how many jump to escape the clutches of MSFT, but the feedback on these blogs will give some insight.
        fr0thy2
    • Yes, you are correct...

      They should wait so Microsoft can snap them up at a lower price.
      BFD
    • You missed this one.

      Investors want the deal to go through. The premium MS offered them was a windfall. All MS has to do is go to the market place where they will be able to buy enough stock at way below their original offer to win a proxy fight. Then the "patient" investors get much less than they would have. Yang and the current board then get sued by institutional investors.

      Microsoft is going to win this one. Their offer was at such a premium the cuurent powers that be at Yahoo will be charged with not fulfilling their fiduciary duties.
      bjbrock
      • Source? (NT)

        NT
        odubtaig
      • The natural world equivalent

        If Microsoft "eats" Yahoo, then you could expect the end result to look something like this: http://www.theage.com.au/news/world/python-dies-swallowing-alligator/2005/10/06/1128191823790.html
        kozmcrae
    • What you guys are all missing is that Yahoo CAN get more if they

      are patient. Sure, it is a huge premium and a windfall, but that does not stop them from realizing they can get even more, since MS is desperate. And, with MS stock price falling, and the offer based partly on stock, that makes the deal less attractive every day. MS needs to boost the initial offer and make it all cash.

      But, Yahoo shareholders would be better off with Yahoo independent.
      DonnieBoy
      • Isn't it sad that the short term blind greed

        couldn't give a **** if it destroys one of the internet's big names?

        Against that, isn't it great that we have FOSS ....
        fr0thy2
  • MS is setting themselves up for further antitrust actions ...

    In the current political climate they are likely to get a pass on this. But the political climate can change and change radically. At some point it will change enough so that antitrust issues will be revisited and this "deal" if it goes through will just add more fuel to that future conflagration. So by their unquenchable thirst to control more and more realms, they are sealing their own future fate.
    George Mitchell
    • Howso?

      Can't be because of the search... even combining Yahoo and MS search, it will still be a distant second to Google.
      Hallowed are the Ori
      • Well, seeing as you asked...

        There's

        1) Buying the largest/monopoly position in webmail
        2) Buying the largest/monopoly position in IM
        3) Because of 1 & 2, interoperability concerns (think EC)
        4) General huge deal oversight inertia that regulators generally take their time over
        zkiwi
        • Ahhh...

          I hadn't even thought about IM and web-mail.

          Thanks.

          (And yeah, the EC is going to have fun with this one, if it progresses that far.)
          Hallowed are the Ori
          • No worries

            Mind you, I reckon this takeover attempt is about the dumbest thing Microsoft have tried in 10 years, well, other than Bill Gates pimping Windows 7 as "it'll be out soon" giving Vista no chance to get to SP2 let alone SP3. I guess that's just about going to gut their enterprise sales of Vista.
            zkiwi
          • Windows 7 pimping was the only choice left

            and Microsoft knew that - how to keep these people "believing" ....
            fr0thy2
  • RE: Yang hits back at Ballmer; mentions antitrust concerns

    I think that Yang is absolutely representing the interest of shareholders in rejecting Microsoft's bid, since a significant portion of the currency is Microsoft's stock.

    There are also issues with Microsoft's business prospects, that have emerged since the initial takeover bid, such as the public documents pertaing to the Vista class action lawsuit, and well as the momentum around the "Bring Back XP" campaign. Why would a Yahoo shareholder want to accept stock in a company whose management is destroying their own brand equity by forcing an upgrade so a system people don't want?
    TightGame
    • Yup, they're desperate to complete the deal before the cat's out the bag

      that's for sure ...
      fr0thy2
  • RE: Yang hits back at Ballmer; mentions antitrust concerns

    Did it occur to anyone that Yang's nice words might be total doublespeak for: "Both our shareholders and employees are scared shitless of this deal, and know it will be ruinous for all concerned. On paper the numbers look good, but our corporate cultures are so incompatible as to even attempt to "merge" the two would be a fruitful as plowing the sea. Many key staff have told us outright they will not join The Borg and will simply leave if this merger goes through. Nothing will get accomplished and the stock will tank."
    vikingnyc@...
    • Penelop and Rupert don't care ...

      ... they don't even know what FOSS is yet ... they're too busy looking at graphs and snorting coke ...
      fr0thy2
  • My Prediction

    Everybody knows the deal will go through at the end, but Yahoo have and will never want it to happen regardless of shareholder's interest. I tell you even MSFT had doubled their offer on Staturday, Yahoo would still say the same. What should MSFT do? Go ahead overtaking the Yahoo board. that's what will eventually happen. Trust me on this.
    jk_10