I am on the conference call with Steve Ballmer (CEO), Chris Liddell (CFO), Kevin Johnson (President PSD), and Ray Ozzie (Chief Software Architect). Chairman Bill Gates is sitting this one out, a sign of his pending departure from the day-to-day grind in Redmond.
We have been talking about this combination for a few years, ever since Google ran away with the search business. Microsoft and Yahoo also have an interest in the social networking business--both tried to acquire the Facebook and Microsoft ended up investing $240 million.
The timing is right for Microsoft and Yahoo shareholders. Yahoo stock is depressed and the outlook for price growth isn't optimistic. "We believe in this combination more than ever and we made a great offer and we look forward to the dialog," Johnson said during the call. He also said that the company has a "clear line of sight" as to how to move forward with the integration of the two parties. So far no word from Yahoo on the bid.
Ballmer talked about the big vision. Software plus services and the Internet are transforming Microsoft's business. "Windows users want to be 'Live,' he said. He alluded to an Office Live, which I assume is a cloud-based Microsoft Office and not just the current Office Live that provides a set of online services for small businesses. Yahoo has 500 million live users, services and technology that could help Microsoft transform...and take on Google.
Ballmer said during the press/analyst call that Microsoft had been talking with Yahoo for 18 months and called Yahoo co-founder and CEO Jerry Yang last night to make the proposal. "We are confident this the right path for Microsoft and Yahoo." I expect that Yang was somewhat relieved at this point to have such an offer after the week of Yahoo pummeling post earnings.
The synergies--sucking up more share of online advertising, scale economics, R&D, operational efficiencies, cap ex savings and $1 billion cost saving via the combination (see Larry's post)--add up to providing choice for the customers in Microsoft speak, meaning a more capable alternative to Google.
Ray Ozzie talked about transforming search and ads and social media, collective online behavior about how people find and share media and communicate, the social Web. He noted that Yahoo played a key role in the evolution of the Web and the company's big asset--lots of users.
Putting the two companies together will be a huge challenge and take a few years to sort out. Most immediately data center build outs, ad platforms and behavioral targeting and R&D can be addressed.
During the call, Microsoft was asked if the offer was final. Liddel said it was an attractive offer, rather than directly answering the question.
Regarding other suitors for Yahoo, Brad Smith, Microsoft general counsel, said any number of company's might have an interest, such as large media companies (News Corp.?). Microsoft made a very compelling offer and media companies encouraged the company to make the investment, which would make the combination number one or two in the marketplace, Smith said.
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