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Memo to Jerry, Steve and Carl: Just Do It!
Summer is generally a slower time for news and this summer is no exception. But the kind folks at Microsoft, Yahoo and Carl Icahn’s investment firm are charitably offering up a form of entertainment with their ongoing Let’s Make a Deal saga.
The latest installment is a letter to shareholders from Yahoo CEO Jerry Yang that accuses Microsoft of flip-flopping, creating confusion and generally not wanting to make a deal. The letter also also reiterates Yahoo’s desire to sell the entire company at $33 per share — or if that’s not interesting, just the search assets.
Let me tell you, Yahoo, playing hard to get is smart, but this letter is no way to get the guy of your dreams. In fact, rumor has it Microsoft is seeing AOL now, and everyone knows AOL hasn’t always made the best choice in relationships.
This stuff may play well in Silicon Valley, but outside of it the world is not watching. While Kara Swisher dutifully calls her sources and provides us with the ins and outs of the wheeling and dealing, the audience outside the tech world is yawning. This started back in February (2007 if you believe the original offer from Microsoft). Let’s finish this, so the world can really focus on the banking crisis or high gas prices.
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Gossip Guys: The Microsoft-Yahoo Saga
Remember back in the Dark Ages before text messaging, when a teenager (let’s call him Jerry Yang) might get a best friend (maybe call him Carl Icahn) to call another friend (say, Steve Ballmer) using three-way calling? With Yang sitting silently on the line, the goal would be for Icahn to goad Ballmer into saying how he really felt about Yang. Well, now that we’re adults, and billions of dollars are on the line, all this is done via proxy battles as is the case with the aborted deal for Microsoft, headed by Ballmer, to buy Yahoo, which is headed by Yang.
The whole thing just gets more and more dramatic — the lack of teen girls notwithstanding. Today, Carl Icahn, who holds a large stake in Yahoo, released a letter to Yahoo shareholders where he says he has spent, like, HOURS on the phone with Ballmer, who was still totally interested in Yahoo. But Ballmer’s, like, so worried that Yang and current Yahoo management might “mismanage” the company during the time it takes to get a deal done (because The Federal Trade Commission can take FOREVER, ya know?)
And Ballmer is putting, like, a ton of dough on the line here, so he needs, like, some kind of assurance that Yang and Co. aren’t going to go screw things up. And in the last attempts, he just didn’t get that, ya know? So Ballmer just HAD to walk away, right? But with a different board, you know, like Icahn’s board? Then, maybe Microsoft could forget about the past and get a deal done. In his letter Icahn says:
I strongly believe that in very short order the new board would, subject to its fiduciary duties, be presenting to shareholders either a purchase offer for the whole company or a very attractive offer to purchase “Search” with large guarantees. I hope to continue to be speaking to Steve over the next few weeks; however, since I do not as yet represent the Yahoo! board, both Steve and I do not wish to get into details over price, or even which of these transactions makes the most sense.
So Icahn, who has, like totally, put up his own slate of directors who would work with Ballmer, could really make this deal happen if shareholders would just, you know, LISTEN to him and vote for his board. Totes!
BTW, the whole crew, including Google and AOL guys, will be in Sun Valley this week for the swanky Allen & Co. media conference. It’s like a high-power slumber party where deals get done and the press gets excluded. Maybe Yang will ditch Ballmer and Icahn for Time Warner CEO Jeff Bewkes who head AOL. Tune in next week for the latest on Gossip Guys.
Update: Microsoft issued its own statement backing Icahn. If Icahn gains control of the board at the Aug. 1 shareholder meeting, Ballmer would talk deals again, either buying just the search assets or possibly the whole company.
Update 2: Yahoo tells Ballmer, “If you want a deal, say that to my face.”
Google Drives Microsoft’s Hostile Bid for Yahoo
This morning, Microsoft offered to buy Yahoo for $44.6 billion in a cash-and-stock deal. While not entirely hostile, as Yahoo’s board is considering the deal, it’s not exactly friendly, either. Steve Ballmer said on a conference call that the two companies have been talking about this for the last 18 months, but that Yahoo management always deferred. Last night Ballmer decided the time was right, called Yahoo CEO and Co-founder Jerry Yang and made the offer.
Ballmer didn’t tell us what Yang said so it’s likely Yahoo’s feeling like a dateless girl before the prom, wondering if she should accept or wait for a better suitor. Given the 62 percent premium Microsoft is offering, shareholders are likely to push for acceptance.
There’s a six-letter reason this deal was struck and it begins with G and ends with -oogle. The specter of the search giant’s dominance was raised at least four times on the conference call, both as the reason the two firms should combine as well as an assurance as to why Google couldn’t make its own bid for Yahoo.
“All of us see this industry growing through consolidation. Today the market is completely dominated by one player and by combining the asset of Microsoft and Yahoo…the industry will be better served by having more players in search and advertising,” said Kevin Johnson, president of the platforms & services division of Microsoft.
The gist here is that Microsoft hopes to beat Google’s monopoly in search and advertising, but given Google’s 75 percent share of search advertising, it’s not clear if Yahoo’s No. 1 position in the smaller display advertising market will be of much help.
Infrastructure was one of the synergies associated with the deal: consolidating data centers, servers, etc., because advertising is a business that benefits from economies of scale. Another goal is to combine search and non-search advertising onto a single platform, and throw the combined forces of Yahoo and Microsoft engineers at the problem of building better software and products for online advertising and consumers.
With the aQuantive deal, Microsoft strengthened its position with advertisers and publishers, but was still weak on the consumer side. That’s where Yahoo comes in. For Microsoft, its overall strategy related to the consumer Internet is securing itself a place in the value chain. It sees advertising as the best way to monetize the consumer Internet, and as such, wants to have all three pieces in place. MSN just wasn’t cutting it.
Johnson cited the forecasted growth in online ad spending, to $80 billion from $40 billion over the next three years, as the reason behind this transaction and others. “Online advertising is not only a significant growth opportunity and but also a critical element of monetization of consumer internet services,” Johnson said.
With the offer at such a premium to Yahoo’s shares, the deal is likely to go through (barring regulatory hurdles). However, given the fears of a recession in online advertising, Microsoft is paying a hefty price to stop Google.
Yahoo, Micrsoft, Google Stats courtesy of Comscore, UBS.
