Posts Tagged ‘Yahoo’

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 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.

Does AOL Have a Strategy?

March 17, 2008

Check out this week’s Digital Dish, where BusinessWeek reporters Spencer Ante, Heather Green, Arik Hesseldahl and Catherine Holahan discuss AOL’s buy of, the endgame in the Microsoft-Yahoo! mating dance and a South by Southwest wrap-up. It’s not all about the parties (really).

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Obama: Master of the Web?

February 16, 2008

In this week’s Digital Dish, BusinessWeek reporters Steve Baker, Heather Green, Catherine Holahan and Spencer Ante discuss the merits of News Corp’s dalliance with Yahoo! and how the Internet is helping to change the art of presidential campaigning.

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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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Micro-Hoo: Is Microsoft following the HP Playbook or the News Corp. Playbook?

February 12, 2008

Yesterday, I appeared on Fox Business News to talk about the latest and greatest soap opera in the tech industry–Microsoft’s courtship (or bear hug) of Yahoo!.

On the show with my former colleague from, Dagen McDowell, I said that Microsoft may be inclined to sweeten its offer to Yahoo! A new offer would never come close to the $40 a share that some insiders say Yahoo!’s board is seeking but I thought it was possible that Microsoft could come up a few dollars–especially since reports have said that Micrsoft was willing to pay around $35 for Yahoo! before its latest disappointing quarter.

Now I’m not so sure about that. The reason is late yesterday Microsoft released a statement calling its bid “full and fair.” The remarks came in response to Yahoo’s earlier statement that Microsoft’s bid “substantially undervalues” the company. While Microsoft did not say $31 is its final offer, it is clearly playing hard ball.

The question now is this: Is Microsoft following the HP playbook or the News Corp. playbook? (Microsoft has said that it studied the HP-Compaq merger as part of its due diligence for putting together a Yahoo1 bid.) HP applied a massive charm offensive and grueling lobbying campaign to win over Compaq shareholders.

Rupert Murdoch, on the other hand, took over Dow Jones by giving the confused Bancroft clan a very sweet offer and then putting on the vice grips. Many analysts thought Murdoch would sweeten his offer to close the deal, especially since the Bancrofts held preferred shares in the company. But Murdoch held firm and quickly carried the day.

I don’t know the answer to this question. But after yesterday, it looks like Microsoft is leaning more and more towards the Murdoch playbook.

Now, don’t get me wrong. Yahoo! is no Dow Jones. The Silicon Valley superstar has fallen on hard times but it is not in a mature and declining business. And Yahoo! did not drive its business into the ground. It’s just competing against a superior competitor. The problem for Jerry Yang is that he has yet to convince shareholders that he has come up with a better vision to combining these behemoths. If he doesn’t, it’s hard to see how he can hold off Microsoft–or hit them up for more money.

We’ll probably get another major clue in the next few weeks if Steve Ballmer & Co. wage a proxy fight. Microsoft could ratchet up pressure on Yahoo’s board by taking its offer directly to shareholders and waging a proxy fight to oust Yahoo’s directors; it has until March 13 to nominate a new slate of directors. Today, though, the New York Post reported that “Microsoft has hired proxy solicitation firm Innisfree in anticipation of a proxy battle to replace Yahoo!’s board.”

Let the games continue…

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Why is Apple Stock Getting Clobbered?

February 9, 2008

In this week’s Digital Dish, BusinessWeek reporters dig into the steep slide in Apple’s shares, troubles with social networks and more analysis of the Microsoft-Yahoo! deal.

Last year, Apple was among the world’s best-performing companies and stocks, more than doubling in value. This year, it’s stock has entered a tailspin. After hitting close to $200 on December 28, Apple shares have plummeted nearly 40% to $121, before bouncing back to $125 yesterday. What’s going on?

Among the reasons for Apple’s slide that we highlight: A thin product pipeline with no blockbuster products for 2008, a softening economy and possibly weakening sales of the iPhone. Check out this week’s show to see the full discussion.

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Earth to Yahoo! What Do Yahoo! Employees Think of the Micro-hoo Deal?

February 2, 2008

The silence in Sunnyvale is deafening. What do Yahoo! employees think of joining forces with Microsoft? My colleague Rob Hof wrote an excellent narrative detailing the fall of this American icon, and he quotes one employee dissing former ceo Terry Semel’s attempts to turn Yahoo! into a Hollywood-type media company. But I have heard little to nothing out of Yahoo! about the deal. I imagine the company is still reeling from this cold cock punch.

The thoughts and feelings of Yahoo! employees may be the single most important factor in making this deal a success–and that’s what worries me. Microsoft execs rightly argue that the one of the chief premises of this deal is that by combining the engineering forces of the two companies, they will be able to compete better against Google.

But what if those employees don’t want to work for Microsoft? One Silicon Valley software exec I spoke to on Friday said if he was a Yahoo! staffer he would never want to work for Microsoft. “A guy I know who helped found Yahoo! is probably crying right now,” said the exec.

One thing right coasters don’t fully appreciate about the tech industry are the historical and ongoing tensions between Microsoft and Silicon Valley. For many years, Microsoft was viewed as the Evil Empire. Why? Because the folks up in Redmond were seen as an impediment to innovation, as an obstacle to making money.

Microsoft’s power over the tech indusry was so great that throughout much of the 1980s and 1990s, Silicon Valley venture capitalists would never invest in a market that Microsoft was in, or even thinking of entering. The anti-trust case changed all that, tying up Microsoft’s hands. And then Bill Gates & Co. just got overrun by new waves of technology, i.e. the Internet.

Now, Microsoft’s hostile offer for one of the Valley’s superstars reawakens those primordial fears. We all know that many of Yahoo! brightest minds have already walked out the door over the last few years as the company stumbled. But I bet that if this deal goes through, you will see a massive stampede for the exits. Smart engineers would probably rather take equity in a startup (or work for Google) than punch the clock for Microsoft.

So Yahoo!, what do you have to say? Would you stay or go and why?

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Merger from Hell? Microsoft Bids $44 Billion for Yahoo!

February 1, 2008

Just woke up and I see the shocking news today: Microsoft said Friday that it has made an offer to buy Yahoo for about $44.6 billion, or $31 a share, in a mix of cash and stock. The offer represents a 62 percent premium over Yahoo’s closing stock price of $19.18 on Thursday. Yahoo!’s stock has soared 50% in pre-market trading, suggesting investors beleive the deal could be consumated.

In a statement, Yahoo acknowledged that it received the proposal from Microsoft and said that its board of directors “will evaluate this proposal carefully and promptly in the context of Yahoo’s strategic plans and pursue the best course of action to maximize long-term value for shareholders.”

Wow, the Yahoo! board has some hard thinking to do. I see the logic of this deal purely from the perspective of the search business: let’s team up on Google and try to beat back the giant. But there seems to be little strategic sense in combining two large portals. Not surprisingly, Microsoft is already talking about how the deal will “create efficiencies that would save approximately $1 billion annually.” The software giant also said that it has an integration plan to include employees of both companies and intends to offer incentives to retain Yahoo employees.

“We have great respect for Yahoo!, and together we can offer an increasingly exciting set of solutions for consumers, publishers and advertisers while becoming better positioned to compete in the online services market,” said Steven A. Ballmer, Microsoft’s chief executive, in a statement.

Game on….

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Tech CEO Survivor

January 26, 2008

This week, eBay CEO Meg Whitman announced she was stepping down after a ten-year run. That got me thinking about what other tech leaders may be headed for the exits in 2008. Check out this video in which BusinessWeek reporters Stephen Baker, Heather Green, Catherine Holahan and Spencer Ante play CEO survivor–and also talk about technology and the Presidential elections, and why the Internet is so annoying sometimes.

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Tech Dominated by M&A–not IPOs

January 9, 2008

A few days ago, I offered readers my forecast for tech IPOs in 2008. But in many ways, the real action–and most realistic exit strategy-for the lion’s share of startups is to be swallowed by some bigger fish. This point was driven home to me when I saw a recent end-of-year M&A report from America’s Growth Capital. Last year, there were 307 tech mergers or acquisitions, down 19% from 381 in 2006. That compared to 60 tech IPOs–a ratio of about 5 to 1.

The disparity in the importance of the IPO market and the M&A market really becomes clear, though, when you look at the value of the transactions. Last year, as of 12/19, there was $203 billion worth of tech M&A deals, compared to just $7 billion in capital raised through IPOs. That’s a ratio of 31 to 1!!!

Merger Chart

Although the number of tech mergers declined, the value of those transactions soared 46%. The main reason? The explosion of huge private equity buy-outs. The number of tech deals exceeding $1 billion soared 38% last year. And four out of the top 10 largest deals were handled by private equity shops: Kohlberg Kravis Roberts acquired First Data, Silver Lake Partners bought Avaya, Madison Dearborn Partners scooped up CDW and The Blackstone Group took over Alliance Data Systems.

So what does this portend for 2008? With the private equity biz in a deep freeze, I would expect that we’ll see a significant decline in both the number of deals and the total value of transactions. That leaves good ol’ corporations as the main predators.

The prevailing business model, er, I mean, fantasy in Silicon Valley today is to be acquired by Google. But Google is not the most acquisitive tech company. Here’s the list of top 10 acquirers in 2007:

Microsoft (17)

Cisco (15)

Google (14)

Oracle (12)

EMC (12)

Hewlett Packard (11)

IBM (11)

Interactive Corps (9)

Yahoo! (6)

Nuance (4)

eBay (4)

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