Posts Tagged ‘Microsoft’

Facebook’s Thiel Explains Failed Twitter Takeover

March 2, 2009

This morning, BusinessWeek published my story confirming for the first time that Facebook made a serious offer for Twitter. I’ve also got some scoopy details on the negotiations and why they failed.

Facebook’s Thiel Explains Failed Twitter Takeover
The social network intends to grow during the downturn, but Facebook’s imprecise and illiquid stock valuation limited its appeal to Twitter

Facebook remains on the lookout for acquisitions after its failed attempt to buy microblogging site Twitter, one of the company’s directors and largest investors says. “We’re still focusing on growing as much as possible,” says Peter Thiel in an interview with BusinessWeek.

In Facebook’s first public confirmation of the talks, Thiel said the parties disagreed over price and structure when they seriously considered a deal last fall. “It became pretty clear it wasn’t going to happen,” Thiel says from the mid-Manhattan office of his hedge fund Clarium Capital. “The deal would have to be done with Facebook stock. And then you have to figure out how much the stock is worth.”

Determining Facebook’s true value is a matter of heated debate. Since Facebook is a private company, there is no liquid market for its stock. When Microsoft (MSFT) bought preferred stock in the company in 2007, it valued Facebook at $15 billion. Around the same time, Facebook placed an internal valuation of the company company’s shares of common stock at about $3.7 billion, according to court documents. The Palo Alto company relied on the appraisal to value employee stock options fairly and avert possible tax problems. But since then, the valuations of most private tech startups have fallen along with stock markets.

Facebook’s Risky Strategy

In November, the blog All Things Digital reported that Facebook was in talks to acquire the fast-growing micro-blogging service Twitter for $500 million, most of it in Facebook stock.

The attempt to buy Twitter fits with Facebook’s risky strategy of pursuing user growth and product innovation over profits. Facebook is hewing to that strategy at a time when many technology companies are slashing costs and announcing layoffs. “It will either turn out to be a great strategy or a terrible strategy,” Thiel says. Larry Yu, a spokesperson for Facebook, declined to comment on Twitter and the other aspects of this story.

If Facebook is to succeed in using its stock to buy companies, it will need to do a better job at persuading targets of its worth. A person close to Twitter with knowledge of the negotiations confirms that valuation was the primary problem. Twitter management also believed and continues to believe that Twitter has tremendous momentum and that its full potential isn’t close to being realized.

Twitter Wanted Open-Market Valuation
Representatives of Twitter liked the sound of $500 million but balked when Facebook said its stock was worth $8 billion to $9 billion. Twitter’s team knew that Facebook was letting employees sell stock on the secondary market at company valuations ranging from $2 billion to $4 billion. “We said it’s not worth it,” the person says. “Don’t treat us like children.”

At that point, Facebook offered Twitter around $100 million in cash, with the rest of the deal in stock. Facebook said it would come up with the $100 million by selling more of its stock to outside investors.

Twitter agreed on one condition: that the Facebook stock it received be valued at the price company shares garnered on the open market. Facebook blinked and the deal talks ended. “They wanted to buy us but there was not much conviction,” the person says.

Click here to read the rest of the story.

Who Should Lead Yahoo? Answer: Nobody

November 18, 2008

Well, no one can say they didn’t see it coming. Jerry Yang is finally out at Yahoo, reports Kara Swisher with the big scoop.

And no one can say he didn’t deserve it. Yang, having spurned Microsoft’s rich takeover offer, bet the farm on a search engine deal with Google. And when Google pulled the plug on the partnership, after government regulators wanted to attach too many conditions to it, the search giant effectively ended the reign of Yang.

Under Yang, Yahoo lost $28 billion in value, as of today’s closing stock price, and hundreds if not thousands of of highly talented people left the Web pioneer. (Sorry, Jerry, I have enormous respect for your accomplishments but the company is not “stronger in many ways than it was just 18 months ago,” as you claimed in your goodbye memo.)

So what happens to Yahoo now? The company announced that it has hired executive recruiter Heidrick & Struggles to conduct a new CEO search.

But I think a strong argument could be made that NO ONE SHOULD LEAD YAHOO! In other words, shareholder return would be maximized if the board entered into serious negotiations to sell the company to Microsoft, if Microsoft still wants to buy Yahoo. And why wouldn’t it?

I’ve always said that the biggest impediment to Yahoo’s sale to Microsoft was Jerry Yang. I still believe to this day, as do many folks in Silicon Valley, that Yang never wanted to sell the company to Microsoft. I also believe that as long as Yang was at the helm, Microsoft CEO Steve Ballmer would never re-enter negotiations with Yahoo!

Now, with the incalcitrant founder out of the way, Ballmer has an opening to take another run at the company.

I realize this is an unusual suggestion. Some folks will argue that Yahoo could increase its value by hiring an outside CEO who could set a fresh course for the embattled giant. But I think the chances of a turnaround are very low, given the strength of Google, the hobbled state of the company, and the weakening economy.

A year from now, Yahoo shares could very well be worth half as much as they are today.

I imagine the Yahoo board could engineer a deal for $17 a share–a 60% premium to today’s close. Meanwhile, MSFT shareholders get YHOO at a 50% discount to the rumored $34 bid this summer.

If Microsoft does not want to buy Yahoo, then I say good luck to the CEO bold enough or crazy enough to take on this job. Whoever it is, the board is probably going to have to throw a lot of money at the person to convince them to take on these headaches.

One way to make the job more appealing would be to take Yahoo private. If the debt markets reopened, Yahoo would make an intriguing buyout candidate in many ways. Sure, it would be a risky deal, but if you took the company out of of the harsh glare of the public market, it could possibly buy Yahoo more time and freedom to dig itself out of this deep hole.

What the Failure of the Yahoo-Google Deal Means

November 5, 2008

So the Google-Yahoo search deal finally fell apart. It’s not terribly surprising. From the beginning, I said that this deal was very problematic, probably anti-competitive, and would raise the ire of government regulators.

Google read the handwriting on the wall and realized the deal no longer made sense. So it pulled the plug this morning.

Yahoo! is clearly the big loser here. They don’t get hundreds of millions in additional revenue that the deal would have generated. Once again they do not have a strategy for turning around the company. And with the economy getting worse, the online display ad market is likely to deteriorate for at least a few quarters, and it may even see negative growth.

“Time is not on their side,” says Dave Morgan, the former chairman and CEO of Tacoda, an online ad network that was sold to AOL in September of 2007 for a reported $275 million. “The longer they wait the worse their numbers get.”

So why is Yahoo’s stock up 6% when the stock market is down 3% today?

Clearly, the market thinks that the failure of the Google deal means that Yahoo is takeover bait again. Problem is, they are running out of dance partners. “It’s a game of musical chairs and the music is stopping and there are not many chairs left,” says Morgan, who left AOL in March.

Google can’t acquire them. Microsoft is probably leery of re-engaging with Yahoo as long as Jerry Yang is running the show. That leaves AOL. It wouldn’t be a merger of strength but it may be Yahoo’s only option at this point–unless the board boots Jerry and invites Microsoft back to the table.

And who wins? Microsoft is the big winner here. Either it gets to buy Yahoo on the cheap, or it can steal market share from Yahoo while the company continues to flail and dither.

“All of this stuff creates an extraordinary distraction for people who buy and sell advertising,” says Morgan. “Who wants to cut a big deal with Yahoo if they have to unwind it a few months from now?

Can Jerry Seinfeld Save Microsoft Vista?

August 24, 2008

In this week’s Digital Dish, the BW tech crew examines Hewlett Packard’s earnings, Comcast’s reaction to the Federal Communications Commission’s request for a new Internet traffic management system, and whether Microsoft’s new ads starring Jerry Seinfeld will solve Vista’s perception problems. (Hint: not a chance.)

Check out the video by clicking here.

For Sale: Facebook Stock

August 7, 2008

Today I wrote a story for BusinessWeek Online reporting that a growing number of Facebook employees have been selling their stock in the social networking phenom. The sales are happening at valuations far below the much-hyped $15 billion valuation Microsoft conferred on the company when it bought a slice of preferred stock last fall.

It’s been the most read story on our Web site all day. If you haven’t read it, click here.

One question for readers: Do you think it’s a good idea for startups to create programs that help employees to sell stock?

IBM, eBay, Google: Tech Earnings Season Preview (Plus the iPhone App Store)

July 13, 2008

In this week’s broadcast of the Digital Dish, the BW tech team talks about Microsoft’s support for Carl Icahn’s moves to oust the board at Yahoo and revive takeover talks. Plus, the upcoming earnings season, and of course, the iPhone.

Check out the video here.

It’s Official: Microsoft and Icahn in Cahoots

July 8, 2008

Compared to last week’s non-stories about continuing talks between Yahoo, Microsoft, AOL and just about any other company with a pulse, yesterday’s news that Carl Icahn and Microsoft have been talking about teaming up to take over Yahoo is a REAL STORY.

This is the first time that these two parties have publicly commented and supported each other in their efforts to get Yahoo to sell all or part of itself to Microsoft. See Carl’s letter here.

And see Microsoft’s confirmation of their talks with Icahn.

The development raises the chances that Icahn could get his slate of directors voted onto Yahoo’s board. Until today’s news, that coup seemed like more of a long-shot. But now that Steve Ballmer has said that Microsoft is interested in restarting talks to acquire some or all of Yahoo–only if the company’s board is replaced at next month’s annual meeting–the odds of the coup surely went up.

Now the big investors must decide who to vote for. And there have been reports that big shareholders are seriously considering to back Icahn’s slate.

Stay tuned for next week’s episode for As The Web Turns….

Micro-Hoo Talks Off Again (Or Are They?)

June 12, 2008

Today, Yahoo confirmed a Wall Street Journal report that its “discussions with Microsoft regarding a potential transaction — whether for an acquisition of all of Yahoo! or a partial acquisition — have concluded. The conclusion of discussions follows numerous meetings and conversations with Microsoft regarding a number of transaction alternatives, including a meeting between Yahoo! and Microsoft on June 8th in which Chairman Roy Bostock and other independent Board members from Yahoo! participated. At that meeting, Microsoft representatives stated unequivocally that Microsoft is not interested in pursuing an acquisition of all of Yahoo!, even at the price range it had previously suggested.”

So the deal talks were dead, right? Well, maybe not. Later this afternoon, Microsoft released a statement in which it hinted at an “alternative transaction” still in the works. Here’s the full statement.

June 12, 2008

Microsoft Corp. today issued the following statement:

“In the weeks since Microsoft withdrew its offer to acquire Yahoo!, the two companies have continued to discuss an alternative transaction that Microsoft believes would have delivered in excess of $33 per share to the Yahoo! shareholders. This partnership would ensure healthy competition in the marketplace, providing greater choice and innovation for advertisers, publishers and consumers.

“As stated on May 3rd and reiterated on May 18th Microsoft was not interested in rebidding for all of Yahoo!. Our alternative transaction remains available for discussion.”

What is going on here? Possibly a separate search deal with Yahoo. But my bet is that Microsoft is willing to wait it out for a full takeover, sort of like laying siege to Yahoo! Yahoo’s stock is already down 10% on today’s news. It would be down more if i weren’t for the rumors about an impending deal with Google.

If and when Yahoo delivers another underwhelming quarter, its stock should continue to fall–even with a Google deal. And then Microsoft can come back with another bid, probably a lower one, and take out the company.

What to Expect from the New iPhone

June 8, 2008

In this week’s Digital Dish, BW’s tech team discusses Verizon’s $28 billion Alltel bid, Carl Icahn’s manuevers to push Yahoo into Microsoft’s arms, and the demise of eBay auctions. On the sunny side: Apple’s new iPhones.

How Much Money Has Facebook Raised?

May 10, 2008

There’s been a number of differing estimates about how much money Facebook has raised. TechCrunch pegs it at $493 million.

But here’s what Facebook CFO Gideon Yu told me: Facebook has had 4 rounds of equity capital financing and two rounds of debt financing. Here are its investors:

Microsoft: $240 million
Li Ka-shing: $120 million
Group of individual investors: $15 million

Before that Yu says Facebook raised another $37.5 million from a “B” round venture investment from Accel Partners and a “C” round investment from Greylock Partners and Meritech Capital Partners.

$12.5 million came from Accel Partners in May 2005. And in April 2006 $25 million came from Greylock Partners, Meritech Capital Partners and Facebook’s existing investors Accel Partners and Peter Thiel also participated. Lastly, published reports have said that in late 2004 Peter Thiel invested $500,000 in angel money in Facebook.

That comes out to a grand total of $413 million. Add in the $100 million it got from TriplePoint at that brings you to $513 million. But that still does not include the first round of debt financing. I don’t know how much that was for.