RSSYahoo to tell shareholders it doubts Microsoft intended a real merger
By Scott M. Fulton, III | Published June 30, 2008, 5:16 PM
Microsoft's history of business transactions during its attempt to acquire and merge with Yahoo, a presentation to Yahoo shareholders will argue, imply that its business goals may have been to weaken Yahoo rather than strengthen it.
Slides from a Yahoo presentation to shareholders that will likely be given during its shareholders meeting on August 1 in San Jose, submitted in advance to the US Securities and Exchange Commission in accordance with law, will make the case that the company's board of directors doubt Microsoft had any serious intention to fully acquire and merge with Yahoo.
One slide's bullet points allege that after Microsoft made public its original $31-per-share tender offer on February 1, it actually was unresponsive to Yahoo's repeated requests for negotiation. Meanwhile, Microsoft publicly threatened to pull out of negotiations unless it got a response of some sort from Yahoo -- this while Yahoo was making, it says, diligent attempts to do just that.
Microsoft "only orally indicated [a] possible increase in price after several months of discussions," the slide alleges. It then raised its offer by "'a few' more dollars" (note the quotation marks around "a few," as if to cite Microsoft's language), followed by "'a couple' more dollars per share;" and then publicly suggested it would raise its offer after it actually had already done so -- if you accept "a few" or "a couple" as an official raise. Then, the slide says, Microsoft withdrew that offer, replacing it with a "hybrid" transaction where it purchased Yahoo's search business outright. A boldface caption on the slide reads, "The record casts doubt on whether Microsoft was ever committed to a whole company acquisition."
A later slide makes the case that Microsoft was incapable of doing the math with respect to its proposed hybrid deal, which was touted as a prospective buyout of Yahoo's search business. Yahoo's interpretation of Microsoft's proposed terms would suggest it was something less than that.
According to the slideshow handed over to the SEC, Microsoft offered to pay $1 billion to enter into a search partnership, in which it assumed control of "search assets." This was apparently confusing to Yahoo, which had already implemented a complex technological reorganization through its Panama program, commercially called AMP, in which merged its display advertising platform with its search platform. For Yahoo, search and display are now the same asset; Microsoft insisted the two were separate, according to Yahoo.
"Yahoo would be left without any search assets," the slide explains. "Not owning search assets (including algorithmic search) would jeopardize the Yahoo user experience and make it difficult for Yahoo to maintain search and display volume."
As Yahoo goes on, the two companies would have entered into a ten-year contract, during which Microsoft would agree to pay 70% of the traffic acquisition costs (TAC) for the search platform -- the cost of doing business. Microsoft would calculate TAC, Yahoo says, by assessing net revenue of traffic delivered by Yahoo search to Microsoft's content and advertising.
But that meant Yahoo would have been responsible for 30% of TAC, and its financial team estimated -- also according to the slideshow -- that this expenditure would have completely usurped any cost savings Yahoo could have realized under Microsoft's plan, assuming Microsoft was completely in charge of creating and implementing that plan. Yahoo estimated those savings to be $750 million annually; Microsoft had projected them at $800 million.
Microsoft offered, the presentation continued, to pay 125% of the price-per-click (PPC) that Yahoo normally receives managing search advertising on its own. But that guarantee lasted for only three years, Yahoo complained, not for the full ten-year term of the agreement. Plus, Microsoft's offer was not based on a more modern revenue-per-click (RPC) model; thus, Yahoo argued, it would have been totally dependent "on Microsoft's ability to build and maintain the marketplace" -- a level of trust it wasn't willing to extend.
Interestingly, one of the terms of the deal was that Microsoft would have veto power over any change of control of Yahoo, preventing anyone else from acquiring control of the company -- theoretically including Icahn Partners, which is leading the current alternate proxy campaign.
A later series of slides attempt to make the case for why Yahoo's text ad partnership with Google was a better deal overall. It shows what it describes as a mockup of Yahoo's search page prior to the addition of Google's sponsored search listings, and the same page after. They are exactly the same screenshot, only the markup is different, apparently to illustrate that the Yahoo user would see no visible difference.
The Google deal is superior to the Microsoft deal, Yahoo goes on to argue, because it leaves Yahoo in full control of its search business, with the ability to maintain control over its user experience and query volume, and cedes no control of its board.
The only thing Microsoft wanted was the domain name and the advertising clients. The LAMP applications, the Java applications, and the employees that built and maintained them would have been spit out like watermelon seeds on the forth of July.
Score: 0
|would have been spit out like watermelon seeds on the forth of July.
...hopefully the difference in size would be matched in distance. ;)
Score: 0
|obviously, yahoo hasn't learned anything from the enron experience.
microsoft has been in this industry much longer than yahoo and they know all the markers of a financially struggling internet company.
now yahoo is going to tell it's shareholders that its financial position has always been "strong" and m$ had no real intentions.
Score: 0
|gp0817
You have issues if you actually think that the Democratic party has that much control. They can barely handle just getting elected into positions.
The Democratic party is so unorganized its actually funny at time. If you really think Bill Gates has that much political power then you should just look at the last 10 years of Microsoft's***ory.
If Microsoft had that much power then they wouldn't have been almost split up. If Microsoft had that much political power, it would have been protected by so many laws from that band of idiots over in the European Union that keep trying to control Microsoft's creativity and make its programs worst like forcing them to remove the search feature from the start menu in Vista because they have a stick stuck so far up you know what they can't moved.
Score: 0
|"Aw, don't worry guys...they didn't *really* mean it. I mean...why would they want to buy *us*? We suck!"
Yep, sounds about Yahoo!'s speed.
Score: 0
|I never thought Microsoft had any intention of buying Yahoo, but that they only wanted to sabotage it. The reason Microsoft wanted to sabotage Yahoo is that Yahoo for months or may be longer allowed citizens of the US and really any country to comment on news articles and the comments could not be controlled by the Democratic party which Bill Gates belongs too, and financially supports. It was nothing but an effort to control, stifle, and annihilate political speech that did not pump up the democrats. Microsoft was never even in the running when it comes to competing with Yahoo or Google for satisfied customers and providing First Amendment liberties. Microsoft has tried to control even what their paying customers do with the software that they buy from Microsoft. Could you imagine a book store telling you after you bought a book, read it and loaned it to someone to read as a gift that they would follow you home, lock your library, remove all your books and then try to blacklist you from ever buying a book? YET that is precisely what the phony "microsoft advantage progam is" and nothing else, but an effort to prevent and control how and when and if you use the Microsoft software you bought in any way. Microsoft should have been shut down by the Federal Antitrust dept instead of making deals with them to get money ! signed gloria poole, RN and artist,
Denver Co 80203
Score: 0
|Hey, don't blame the Democrats for THIS. There is plenty of blame to go around, and certainly many problems we have in our country stem from Democrats...and Republicans both. It's just that it sounds like you stem alot of your dislike of Microsoft strictly off the fact that Bill is a Democrat. Would you believe that I vote mostly Republican and I also believe Microsoft, specifically Bill Gates, has been an overwhelmingly positive influence to our country, our world, and our economy, rather than a negative one?
Don't look at life as a war against political parties. It'll screw you up in the head. I've seen too many people I know get hellbent over it.
Be active in politics if you want. Root for your party if you want. But realize it isn't all about your party. As a consevartive I don't even care much about Bill's political affiliation. I will start to care if he spends all of his Bill and Melinda Gates Foundation money on strictly liberal goals rather than what they have been spending it on, but so far it looks like they've been spending it in areas that both Democrats and Republicans can agree it needs spent on--helping those in need, research for cures to AIDS, etc.
This has digressed way off topic so I'll stop talking now.
Score: 0
|How could ANYONE think that a merger with MICROSOFT could be underhanded? How could anyone on that board of directors think Microsoft couldn't be the best thing that's happened to web search? I mean, COME ON!
I don't see any problem with a company that is firmly founded on search rejecting a bid from a company that is (poorly) founded on a desktop operating system and office software and has shown poor judgment (at best) with their attempts to run a search engine. Seems whoever made that presentation is protecting the shareholders' butts to me.
And, why doesn't BetaNews recognize the sarcasm tag? Perhaps, that'll be fixed in FinalNews.
Score: 0
|*laughs*
You've got sarcasm down. Now you just need to work on Board Responsibility and Shareholder Return.
These are what Yahoo ignored and are now trying to worm their way out of.
I don't see any problem with...
In all that you "don't" see, you're also missing the dollar signs. Something the Board of any publicly traded company is beholden to maximize at every opportunity, regardless of their (or their fanboys) personal feelings.
They fail to do so at the risk of massive backlash including the very real possibility of lawsuits from shareholders.
Score: 0
|whiney...indeed
Score: 0
|I think it's time Yahoo stopped whining. This is business, public companies are legally required to attempt to maximize shareholder value. A large percentage of Yahoo shareholders were in favor of the merger, as were most outside analysts. The most outspoken detractors were the executives of Yahoo (the few who are left), who are of course attempting to protect their own butts.
Score: 0
|