Microsoft
Corp. today announced that it has made a proposal to the Yahoo! Inc. Board of
Directors to acquire all the outstanding shares of Yahoo! common stock for per
share consideration of US$ 31 representing a total equity value of approximately
US$ 44.6 billion. Microsoft's proposal would allow the Yahoo! shareholders to
elect to receive cash or a fixed number of shares of Microsoft common stock,
with the total consideration payable to Yahoo! shareholders consisting of
one-half cash and one-half Microsoft common stock. The offer represents a 62
percent premium above the closing price of Yahoo! common stock on Jan. 31, 2008.
"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 Steve
Ballmer, chief executive officer of Microsoft. "We believe our combination will
deliver superior value to our respective shareholders and better choice and
innovation to our customers and industry partners."
"Our lives, our businesses, and even our society have been progressively
transformed by the Web, and Yahoo! has played a pioneering role by building
compelling, high-scale services and infrastructure," said Ray Ozzie, chief
software architect at Microsoft. "The combination of these two great teams would
enable us to jointly deliver a broad range of new experiences to our customers
that neither of us would have achieved on our own."
The online advertising market is growing at a very fast pace, from over US$
40 billion in 2007 to nearly US$ 80 billion by 2010. The resulting benefits of
scale along with the associated capital costs for advertising platform providers
make this a time of industry consolidation and convergence. Today this market is
increasingly dominated by one player. Together, Microsoft and Yahoo! can offer a
competitive choice while better fulfilling the needs of customers and partners.
"The combined assets and strong services focus of these two companies will
enable us to achieve scale economics while reaching R&D critical mass to deliver
innovation breakthroughs," said Kevin Johnson, president of the Platforms &
Services Division of Microsoft. "The industry will be well served by having more
than one strong player, offering more value and real choice to advertisers,
publishers and consumers."
The combination will create a more efficient company with synergies in four
areas: scale economics driven by audience critical mass and increased value for
advertisers; combined engineering talent to accelerate innovation; operational
efficiencies through elimination of redundant cost; and the ability to innovate
in emerging user experiences such as video and mobile. Microsoft believes these
four areas will generate at least US$ 1 billion in annual synergy for the
combined entity.
Microsoft has developed a plan and process that will include the employees of
both companies to focus on the integration of the combined business. Microsoft
intends to offer significant retention packages to Yahoo! engineers, key leaders
and employees across all disciplines.
Microsoft believes this proposed combination would receive all necessary
regulatory approvals and expects that the proposed transaction would be
completed in the second half of calendar year 2008.
Microsoft is also committed to working closely with Yahoo! management and its
Board of Directors as they, along with Yahoo! shareholders, evaluate this
compelling proposal.
Below is the text of the letter that Microsoft sent to Yahoo!'s Board of
Directors:
Board of Directors
Yahoo! Inc.
701 First Avenue
Sunnyvale, CA 94089
Attention: Roy Bostock, Chairman
Attention: Jerry Yang, Chief Executive Officer
Dear Members of the Board:
I am writing on behalf of the Board of Directors of Microsoft to make a proposal
for a business combination of Microsoft and Yahoo!. Under our proposal,
Microsoft would acquire all of the outstanding shares of Yahoo! common stock for
per share consideration of US$ 31 based on Microsoft's closing share price on
January 31, 2008, payable in the form of US$ 31 in cash or 0.9509 of a share of
Microsoft common stock. Microsoft would provide each Yahoo! shareholder with the
ability to choose whether to receive the consideration in cash or Microsoft
common stock, subject to pro-ration so that in the aggregate one-half of the
Yahoo! common shares will be exchanged for shares of Microsoft common stock and
one-half of the Yahoo! common shares will be converted into the right to receive
cash. Our proposal is not subject to any financing condition.
Our proposal represents a 62% premium above the closing price of Yahoo! common
stock of US$ 19.18 on January 31, 2008. The implied premium for the operating
assets of the company clearly is considerably greater when adjusted for the
minority, non-controlled assets and cash. By whatever financial measure you use
- EBITDA, free cash flow, operating cash flow, net income, or analyst target
prices - this proposal represents a compelling value realization event for your
shareholders.
We believe that Microsoft common stock represents a very attractive investment
opportunity for Yahoo!'s shareholders. Microsoft has generated revenue growth of
15%, earnings growth of 26%, and a return on equity of 35% on average for the
last three years. Microsoft's share price has generated shareholder returns of
8% during the last one year period and 28% during the last three year period,
significantly outperforming the S&P 500. It is our view that Microsoft has
significant potential upside given the continued solid growth in our core
businesses, the recent launch of Windows Vista, and other strategic initiatives.
Microsoft's consistent belief has been that the combination of Microsoft and
Yahoo! clearly represents the best way to deliver maximum value to our
respective shareholders, as well as create a more efficient and competitive
company that would provide greater value and service to our customers. In late
2006 and early 2007, we jointly explored a broad range of ways in which our two
companies might work together. These discussions were based on a vision that the
online businesses of Microsoft and Yahoo! should be aligned in some way to
create a more effective competitor in the online marketplace. We discussed a
number of alternatives ranging from commercial partnerships to a merger
proposal, which you rejected. While a commercial partnership may have made sense
at one time, Microsoft believes that the only alternative now is the combination
of Microsoft and Yahoo! that we are proposing.
In February 2007, I received a letter from your Chairman indicating the view of
the Yahoo! Board that "now is not the right time from the perspective of our
shareholders to enter into discussions regarding an acquisition transaction."
According to that letter, the principal reason for this view was the Yahoo!
Board's confidence in the "potential upside" if management successfully executed
on a reformulated strategy based on certain operational initiatives, such as
Project Panama, and a significant organizational realignment. A year has gone
by, and the competitive situation has not improved.
While online advertising growth continues, there are significant benefits of
scale in advertising platform economics, in capital costs for search index
build-out, and in research and development, making this a time of industry
consolidation and convergence. Today, the market is increasingly dominated by
one player who is consolidating its dominance through acquisition. Together,
Microsoft and Yahoo! can offer a credible alternative for consumers,
advertisers, and publishers. Synergies of this combination fall into four areas:
Scale economics: This combination enables synergies related to scale economics
of the advertising platform where today there is only one competitor at scale.
This includes synergies across both search and non-search related advertising
that will strengthen the value proposition to both advertisers and publishers.
Additionally, the combination allows us to consolidate capital spending.
Expanded R&D capacity: The combined talent of our engineering resources can be
focused on R&D priorities such as a single search index and single advertising
platform. Together we can unleash new levels of innovation, delivering enhanced
user experiences, breakthroughs in search, and new advertising platform
capabilities. Many of these breakthroughs are a function of an engineering scale
that today neither of our companies has on its own.
Operational efficiencies: Eliminating redundant infrastructure and duplicative
operating costs will improve the financial performance of the combined entity.
Emerging user experiences: Our combined ability to focus engineering resources
that drive innovation in emerging scenarios such as video, mobile services,
online commerce, social media, and social platforms is greatly enhanced.
We would value the opportunity to further discuss with you how to optimize the
integration of our respective businesses to create a leading global technology
company with exceptional display and search advertising capabilities. You should
also be aware that we intend to offer significant retention packages to your
engineers, key leaders and employees across all disciplines.
We have dedicated considerable time and resources to an analysis of a potential
transaction and are confident that the combination will receive all necessary
regulatory approvals. We look forward to discussing this with you, and both our
internal legal team and outside counsel are available to meet with your counsel
at their earliest convenience.
Our proposal is subject to the negotiation of a definitive merger agreement and
our having the opportunity to conduct certain limited and confirmatory due
diligence. In addition, because a portion of the aggregate merger consideration
would consist of Microsoft common stock, we would provide Yahoo! the opportunity
to conduct appropriate limited due diligence with respect to Microsoft. We are
prepared to deliver a draft merger agreement to you and begin discussions
immediately.
In light of the significance of this proposal to your shareholders and ours, as
well as the potential for selective disclosures, our intention is to publicly
release the text of this letter tomorrow morning.
Due to the importance of these discussions and the value represented by our
proposal, we expect the Yahoo! Board to engage in a full review of our proposal.
My leadership team and I would be happy to make ourselves available to meet with
you and your Board at your earliest convenience. Depending on the nature of your
response, Microsoft reserves the right to pursue all necessary steps to ensure
that Yahoo!'s shareholders are provided with the opportunity to realize the
value inherent in our proposal.
We believe this proposal represents a unique opportunity to create significant
value for Yahoo!'s shareholders and employees, and the combined company will be
better positioned to provide an enhanced value proposition to users and
advertisers. We hope that you and your Board share our enthusiasm, and we look
forward to a prompt and favorable reply.
Sincerely yours,
/s/ Steven A. Ballmer
Steven A. Ballmer
Chief Executive Officer
Microsoft Corporation
Microsoft will host a press/analyst/investor conference call at 8:30 a.m.
Eastern Time/5:30 a.m. Pacific Time to discuss today's announcement and I'm sure we will hear more today, maybe even a reply from Yahoo!.
UPDATE: Following Microsoft's takeover proposal, Yahoo! Inc. today
said that it has received the unsolicited proposal from Microsoft to acquire the Company. The Company 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.
Cheers ~ Arne
