Posts Tagged ‘Steve Ballmer’

Microsoft Walks from Yahoo Deal; Ball’s In Your Court, Jerry

May 4, 2008

Wow. I can’t believe Microsoft actually walked away from the Yahoo! deal.

But while I am truly surprised, I believe Steve Ballmer made the right call. I’ve said from the beginning that this deal was too big and too risky–I called it a potential merger from hell several times around the office and on TV–especially given the cultural differences between the two companies and the fact that Microsoft had never before pulled off an acquisition of this size.

Now that the tech industry’s biggest soap opera appears to have reached its dramatic conclusion, there are two big questions to answer:

1. Why did Ballmer and the Microsoft board pull a 180 and change their mind?
There’s got to be more to this story. Some people will wonder why Microsoft did not come back with a slightly higher offer, in the $34 to $35 range, which could have sealed the deal.

Something happened during this process that gave Microsoft the willies. Maybe it was the strong negative reaction from their employees that caught management off guard. Or maybe it was Yahoo’s determination to not break. Or maybe Ballmer underestimated the greed and toughness of some major shareholders.

To me, the behavour of the reluctant shareholders is just as surprising as Ballmer’s retreat. Reports have said that some big Yahoo investors such as Legg Mason were holding out for $34 or $35 a share. Given that Microsoft was willing to offer $33 a share, those shareholders will probably live to regret that position.

But while Ballmer ultimately did the right thing for his employees and shareholders, I believe his reputation is going to take a hit in the short term. This was Ballmer’s big first play as CEO of Microsoft and it just looks a bit odd for him to reverse course on such an enormous strategic move.

Now, Microsoft needs to figure out other ways “scale” and go after Google in the online advertising market. Maybe Microsoft will try to cut a deal with AOL or MySpace?

2. What is Yahoo’s next move?
While I admire Yahoo’s toughness and determination to fight off the giant from Redmond, Jerry Yang & Co. have a lot of explaining to do. They just turned down a very handsome offer for their company. Many shareholders are going to be pissed and sell off the stock–while others are likley to launch a raft of lawsuits against Yahoo. My hunch is Yahoo plummets to the low $20s tomorrow morning. (It was around $19 before Microsoft made its $31 offer.)

The only reason it won’t fall further is because Yahoo keeps threatening to outsource part of its search traffic to Google. That could provide a short-term financial boost to Yahoo but it’s a losing long-term strategy as their share of search traffic would continue to decline, and it might even accelerate after such an arrangement. It also may never amount to much because regulators are likely to prevent the companies from cutting a substantial deal.

It will be interesting to see if Yahoo continues its merger talks with AOL, News Corp. or other partners. My hunch is that while they might, nothing is likely to come from it. For Yahoo, the merger talks seemed like more of a manufactured diversion or knee-jerk reaction than a well-considered move of true strategic intent.

So if Yahoo can’t or doesn’t pursue a significant deal with Google, and it doesn’t merge with another company, that still leaves the $44 billion question: What is Jerry Yang & Co. going to do to give Yahoo a better shot at remaining competitive ande lift its slumping stock?

Ball’s in your court, Jerry. Sometimes it’s dangerous to get what you wish for. Good luck.

Merger Madness: Yahoo-Microsoft-AOL-FIM-???

April 10, 2008

OK, this is getting ridiculous. Today, the race to acquire Yahoo! has become perhaps the weirdest merger contest in the history of the technology industry.

Consider the day’s string of increasingly absurd leaks, er, I mean reports about Yahoo’s activities. First, this afternoon Yahoo! announced it would begin a limited two-week test of Google’s search technology on the U.S. version of Yahoo.com. Then, this evening at 10:35 pm EST, the Wall Street Journal reported that Yahoo and AOL were “closing in on a deal to combine their Internet operations.”

Not be to be outdone, the New York Times reported minutes later that “News Corp. is in talks with Microsoft about joining in its contested bid for Yahoo,” proposing a deal to join Yahoo, Microsoft’s MSN and News Corp’s Fox Interactive Media division, home of the MySpace social network. (If the story wasn’t penned by the usually reliable Andrew Sorkin, it would be laughable.)

Here’s my take: Yahoo is getting increasingly desperate. After Steve Ballmer issued a three-week ultimatum to Yahoo on Sunday April 5, Yahoo realized its needed to break out all the stops to either a) get a sweetened offer from Microsoft or b) strike a deal of comparable value that avoids getting co-opted by the Evil Empire in Redmond.

The announcement to outsource a miniscule amount of its search inventory smacked of last-minute desperation. (I like Silicon Alley Insider but I totally disagree with Henry Blodget that this was a “brilliant move.”) Even if the test improved the effectiveness of Yahoo’s search results (which is no slam dunk), there’s no guarantee Yahoo would outsource enough of its inventory to produce a material return. In its press release Yahoo went out of its way to stress the transient nature of the deal, saying “the testing does not necessarily mean that Yahoo! will join the AdSense for Search program or that any further commercial relationship with Google will result.”

The deal talks are a whole other matter. But let’s be clear: These are not superior proposals. Still, even if the deals are inferior (i.e. Yahoo would be much better off merging with Microsoft than the much smaller and weaker AOL, to say nothing of the deal’s antitrust issues), or just off-the-wall (adding MySpace to an already complicated Microsoft-Yahoo combination seems like a one-way express ticket to merger hell), they give Yahoo leverage in its talks with Microsoft. More suitors, however unattractive they are, create the impression of enhanced value (it would be interesting to know the valuation that these deals give to Yahoo). So give Jerry Yang & Co. credit for being shrewd enough to lure AOL and News Corp onto the dance floor.

I said in the beginning of this process that Microsoft would have to sweeten its offer. Lately, as Ballmer & Co. showed increasing signs of aggressiveness and the unimpressiveness of Yahoo’s future plans began to materialize, I began to question myself. But Yahoo’s shucking and jiving today makes me think it just might happen.

Battle of Letters: Bill Miller Trumps Jerry Yang

February 14, 2008

Last night, SearchEngineWatch posted the full text of a letter Yahoo! chief exec Jerry Yang sent to its shareholders. The letter follows up on Yahoo!’s rejection letter to Microsoft, explaining why Yahoo!’s board believes Microsoft’s proposal significantly undervalues Yahoo and isn’t in the best interests of Yahoo stockholders. In the missive Yahoo CEO Jerry Yang emphasizes its strong brand, financial strength, strategic investments, technology, relationships with marketers and the huge opportunity in online advertising.

It’s not very convincing. “We are executing our strategy – and making headway,” claims Yang. Not.

A far more important letter was sent on Feb. 12 by the respected money manager Bill Miller. Legg Mason’s Value Trust fund, which Miller runs, is Yahoo!’s second largest shareholder. In his letter, Miller told investors that Microsoft will probably need to raise its $31-per-share offer if it wants to seal the deal. In the end, though, he said that Yahoo is in a “tough spot if it wishes to remain independent” and added that it will be “hard for Yahoo to come up with alternatives.”

What Miller’s letter shows is that most shareholders believe doing a deal with Microsoft is the best way to create more value for shareholders in the short term. It’s easy money up front, with no risk. To get the deal done, all Microsoft needs to do is sweeten that offer. Give Yang credit for restarting deal talks with News Corp. Forming some sort of combination with Fox Interactive Media may be just enough of a real threat to get Steve Ballmer to up its offer.

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