
Microsoft Withdraws Yahoo Bid; Walks Away From Deal - raghus
http://www.techcrunch.com/2008/05/03/breaking-microsoft-walks/
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JohnN
Personally, if I was a Yahoo shareholder I would be calling up my lawyers to
start suing the Yahoo board. Financially this deal is clearly good for
shareholders coming at a 60% premium.

I can't personally see why Yahoo would be worth $38 a share. The job of the
board is to do what's in the best interest of shareholders but ultimately it
personally seems this deal was not rejected because of the numbers but because
of the sentimental attachment to Yahoo independence.

Expect some litigation

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JayNeely
Nothing personal, but that's the kind of shareholder that ruins good
businesses. The language of Ballmer's letter is clearly intended to cause
precisely that kind of action from Yahoo! shareholders.

The shareholders sue the management, the management spends its time defending
itself from lawsuits rather than leading innovation and increasing stockholder
value, department projects go awry and more employees leave, and the stock
drops. Microsoft makes the same kind of offer a few years later, but at an
even lower price. The new management, seeing what happened to their
predecessors, will take the offer, and Microsoft gets all of Yahoo!'s assets
at a bargain price.

It's absolute short-sightedness on the part of stockholders. Surely the mere
fact that Microsoft was willing to buy the company at a 70% premium indicates
that the stock was undervalued to begin with, and that people with the tech &
business knowledge to see the big picture (not just the Microsoft execs, the
Yahoo! execs too) knew the value of the company could be increased.

Even if the management at Yahoo! can defend itself from these lawsuits,
they'll have been put on the defensive, on every front. No major initiatives,
no bold new plans, no big mergers or acquisitions that could actually help the
company; if they rock the boat a second time so soon again, they won't avoid
being tossed out. So while they stay the course set by the backseat drivers
who don't even have a full view of the road, Microsoft is free to out-compete.

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JohnN
>"Nothing personal, but that's the kind of shareholder that ruins good
businesses. The language of Ballmer's letter is clearly intended to cause
precisely that kind of action from Yahoo! shareholders."

Perhaps you are right. But shareholders rarely hold stock to build good
businesses they are there to make money. They would happily invest in a bad
company if it was about to be bought out for a huge premium. Once you go
public, few things matter other than the numbers.

Plus 72% of Yahoo shareholders are professional money managers, arbitrageurs,
and regular investors. These people are likely to want this deal to go
through.

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umjames
I cannot think of a better advertisement for staying small and profitable. Why
work so hard for financial and creative indepenence, and then have money-
hungry shareholders take that away for their own motives?

It's not only bad VCs that can do this, apparently bad shareholders can too.

~~~
DougBTX
Or to sell both A and B class shares :)

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JohnN
Yer....I think Google did this.

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mronge
I wonder if they are walking away from the deal so the stock tumbles, and they
can come back in a quarter or two and try and nab Yahoo then. I think Oracle
actually did this with Peoplesoft?

~~~
jmzachary
This definitely puts the spotlight on Yahoo to start performing PDQ. If they
are the same track six months from now that they are on today, you can expect
some real gnashing of teeth among the shareholders.

On the other hand, Microsoft comes out of this looking pretty good (among the
none geek crowds). They tried to buy this poor company at a 60-70% premium.

I wonder if MS has another acquisition target in their sites .

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nickb
One thing's for sure... this news is great for startups! Having MS and Y!
combined would have reduced the number of exit points for startups. Also, it
would have resulted in massive layoffs which would have further reduced the
number of acquisitions that they would have made as a combined company. At
least now you still have three major players to negotiate with.

~~~
tptacek
Maybe. But the other way to look at it is, MSFT has an NIH culture and isn't a
prolific acquirer; MSFT-YHOO combined could have produced more acquisitions
than MSFT and YHOO apart.

~~~
phaedrus
I don't follow your logic: if Microsoft has an NIH culture why would the
combined Microsoft+Yahoo do more acquistions than Yahoo did independently?
Remember who would be consuming who here. Isn't it more likely that the larger
Microsoft would replace Yahoo's culture than it would be that Yahoo's culture
would mollify Microsoft's?

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tptacek
Acquiring cultures get co-opted by their acquired companies all the time;
think VW and Audi.

In this case, a much-needed culture shock to Redmond was almost an explicit
perk of the deal for MSFT. It's not hard for me to imagine that a MSFT with a
revitalized web strategy could go on to acquire more companies than they will
on their own.

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grantc
Yahoo was in the headlights before. Now they're just roadkill.

I think a MSFT+YHOO merger would have been massive fail, but it's Microsoft
that ends up dodging the bullet here. Yahoo just takes one. Where exactly is
Yahoo relevant anymore?

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misterbwong
I'm probably way off base, but it seems like MSFT is doing this to decrease
the price of YHOO.

1\. Pull out offer 2\. Shareholders complain 3\. Markets kill YHOO 4\. MSFT
comes back and buys cheaper?

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lyime
This is extreamly unfortunate to yahoo shareholders. At the current state I
don't see how yahoo can create value in the company. I wonder how bad the
stock will fall starting monday

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rms
Ballmer says clearly in the letter that they will not be pursuing a proxy
nomination battle. Do you think he is telling the truth?

~~~
jorgeortiz85
His explanations seem credible. There are a lot of "poison pills" that Yahoo
can swallow between the start of a proxy battle and the installment of MSFT-
friendly management.

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dangoldin
And that is a lesson to us all that we should have private companies.

~~~
neilc
Really? How does that follow?

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phaedrus
I think he means you can't (AFAIK - please correct me) do a hostile takeover
of a private company, at least not in the same manner. because in a privately
owned company there are no public stockholders to appeal to; the owner and the
manager of the business are one and the same.

Really though, what this really is is an example of why you should have a
dual-class share system where there are "investment shares" and "voting
shares", and investing doesn't give you automatic voting rights. Yahoo for
some reason didn't have that, and it put the board especially at risk to
hostile takeover.

~~~
dangoldin
Exactly. Founders tend to think that the holy grail is going public but then
you'd have to worry about shareholders and short term growth.

It would be perfectly fine to stop right before going public and run the
company the way you wanted.

Cargill is a private company with $67B in revenue in 2004 so it's not a
question of generating the money
(<http://www.forbes.com/lists/2005/21/5ZUZ.html>).

~~~
aneesh
Founders want to go public to cash out, not because they want to run a
publicly traded company. In fact, many leave the company after IPO.

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ideas101
This is the best thing that could have happened for everyone (MS, Yahoo,
Yahoo's stakeholders, Google, Apple and all new startups) ... there are 3
major stakeholders (shareholders, employees and end users) and two out of 3
stakeholders weren't happy with the deal - it would have been irreversible
disaster if MS bought yahoo by borrowing money from outside...i think MS knew
that Yahoo won't come below $37 and walking away is the best face saving
tactic - it was like heads i win, tale you loose... it seemed that MS was
having cold feet after realizing that yahoo brains and end users may leave the
company after acquisition. Also it was uphill battle to integrate 2 businesses
with totally different culture and technology. MS can do much better with
$45Billion.

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gscott
I believe Microsoft just couldn't afford Yahoo because of Vista. If Vista sold
well and there was mass adoption then MS would have had the free cash flow to
aquire Yahoo without having to borrow. If Yahoo next year is at $20 a share,
Microsoft may try again. (edited to cut out unimportant sections)

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byrneseyeview
"They can't pull out all of there investments right now, it would devastate
the stock market."

Really? Their balance sheet doesn't show a huge amount of long-term
investments. And yesterday, $1.9 billion worth of Microsoft stock alone
changed hands -- it would be very hard for them to upset the market selling
gradually. In addition, they're generating at least $4 billion in operating
cash flow each quarter, which would support a lot of debt at a low rating.

Finally, they could issue stock. Free cash flow is not the issue.

~~~
gscott
If Microsoft issues more stock it would dilute it's shares which causes some
people to pull out of the stock further sending it's price down. I really
don't believe they would wipe out hundreds of millions / billions of
shareholders value for Yahoo.

You just can't take billions of dollars in investments out without proper
planning. Just because they can cash out doesn't mean that is a great idea.
They would have nothing in reserves. One of the founders of Microsoft, Paul
Allen was really big on having reserves that they would not spend and I would
be suprised if that attitude didn't still prevail today.

Yahoo doesn't throw of enough cash either. Microsoft would have to fire half
of Yahoo's employees (think Compaq computers), which would cause customers to
run for the hills expecting the worst to happen to customer service and other
functions.

Yahoo right now is just too expensive for MS.

~~~
phaedrus
Curious. What do you think - has Microsoft been so successful in business at
least in part _because_ of its insistence per Paul Allen of keeping large cash
reserves, larger than most companies keep on hand? (MiniMSFT blogger said
something like, "Why? We're not a bank!")

Or is it simply that Microsoft has held a very lucrative monopoly position for
many years and just makes more money than it knows what to do with? I.e.,
perhaps its habit of keeping large cash reserves are just an effect of its
success and not any kind of cause of it?

The reason I pose the question is that I have been forming a layman's theory
that in fact it is all about the cash, even as much for a huge company as it
is for a small mom and pop store; that as long as a company has cash on hand
it can go on, and when it runs out of cash the end is coming even if it takes
years in a downhill slide. If you take corruption as a given, I suspect that
all the accoutrements of big-company strategies like pursuing growth over
profitability, borrowing money to run at a loss, etc., are nothing more than
smokescreen thrown up by upper management to make it look like they're doing a
good job when they're really bleeding the company. Rather than being a waste
of resources, I rather wonder if keeping a large cash reserve is like a
protective armor to keep a company from having to borrow at interest during
rough periods. Is this completely off the mark?

~~~
eru
An indirect reply: Managers usually favour large reserves for it gives them
more power and they do not have to beg for capital. Shareholders do not
usually want to have cash layin around more or less idle.

