Microsoft Abandons Yahoo Acquisition PC World via Yahoo News

Microsoft has dropped its nearly three month long pursuit of Yahoo ending a historic acquisition attempt whose failure takes Microsoft back to square one in its quest to boost its online business to better compete against Google . We continue to believe that our proposed acquisition made sense for Microsoft Yahoo and the market as a whole. Our goal in pursuing a combination with Yahoo was to provide greater choice and innovation in the marketplace and create real value for our respective stockholders and employees said Microsoft CEO Steve Ballmer in a statement distributed early Saturday evening. More Money Not Sufficient Microsoft had raised its initial bid by about US billion but that didn t convince Yahoo to accept the revised offer Microsoft said. After careful consideration we believe the economics demanded by Yahoo do not make sense for us and it is in the best interests of Microsoft stockholders employees and other stakeholders to withdraw our proposal said Ballmer. I! n response Yahoo issued a statement reiterating its position that Microsoft s offer was too low and saying that many Yahoo shareholders agreed with its position. Yahoo is profitable growing and executing well on its strategic plan to capture the large opportunities in the relatively young online advertising market Roy Bostock the chairman of Yahoo s board said in the statement. Yahoo CEO Jerry Yang said that with the distraction of Microsoft s unsolicited proposal now behind us Yahoo can continue with the most important transition in our history. All parties with a stake in the deal had been waiting for Microsoft to announce its next move after Yahoo failed to agree to a deal by last Saturday the deadline Microsoft had set three weeks earlier. But Microsoft stayed silent for days as observers speculated whether it would walk away or prepare a hostile takeover . However on Friday anonymously sourced reports in The Wall Street Journal and The New York Times said that Microsof! t and Yahoo had turned a corner and were for the first time negotiating merger terms in earnest. Too Much Trouble Ultimately it seems that Microsoft s management fatigued by Yahoo s resistance and demands decided that engaging in a proxy fight to oust Yahoo s directors would be an arduous and nasty process. After all for Microsoft the goal of the massive acquisition was to quickly become a mightier competitor to Google in online advertising. This approach would necessarily involve a protracted proxy contest and eventually an exchange offer. Our discussions with you have led us to conclude that in the interim you would take steps that would make Yahoo undesirable as an acquisition for Microsoft Ballmer wrote in a letter he sent Saturday to Yang . As soon as Microsoft announced its bid for Yahoo on Feb. valued at US . billion at the time Yahoo s management began seeking and considering alternatives while its stock began to rise from the latest pre bid price of . . By the time Yahoo s board formally rejected the unsolicited offer on Feb. saying i! t undervalued the company Yahoo s stock price had risen to . erasing the offer s premium. The next day Microsoft hinted in a letter to Yahoo that it wouldn t shy away from attempting a hostile takeover. Meanwhile several media reports appeared all attributed to anonymous sources that Yang was holding conversations with Google AOL Disney and News Corp . exploring alternative deals that would strengthen Yahoo s business and thus relieve the pressure to accept Microsoft s offer. On April Microsoft clearly impatient threatened Yahoo s board of directors with a proxy battle if it wouldn t agree to a buy out in the next three weeks. That deadline passed last Saturday. Courting Google No alternative deal ever materialized for Yahoo except for a very limited albeit eyebrow raising test that saw Yahoo.com . Observers speculated that the test announced on April could lead to a full blown outsourcing of Yahoo s search ad business to Google a move that financial analysts believe could ! boost Yahoo s revenue. Press reports last week indicated that Yahoo and Google might still enter into such a deal. This possible deal with Google played a big part in Microsoft s decision to walk away Ballmer wrote in his letter. If Yahoo outsourced search advertising to Google the deal would fundamentally undermine Yahoo s long term viability he wrote. This would also fragment your search advertising and display advertising strategies and the ecosystem surrounding them. This would undermine the reliance on your display advertising business to fuel future growth Ballmer wrote. Moreover the Google deal would cause key advertising system engineers to leave Yahoo and would create regulatory and legal problems that Microsoft wouldn t want to inherit Ballmer wrote. Yahoo also made overt maneuvers to buy itself time. For example on March Yahoo lifted the following week s deadline for nominating directors to its board an attempt to discourage Microsoft from launching a proxy fight to replace the current board with members willing to approve its Yahoo! acquisition bid. On March it kicked off a tour to investors by dusting off a three month old financial plan to reinforce its contention that Yahoo is worth much more than Microsoft offered to pay for it. The plan which had originally been presented to Yahoo s board in December predicts that Yahoo will double its operating cash flow over the next three years from US . billion to . billion. The plan also forecasts that subtracting the commission that Yahoo pays to sites in its advertising network Yahoo will generate . billion in revenue in . Financial analysts agreed the plan is highly optimistic. Yahoo also got into hyperactive mode with product and strategy announcements after Microsoft s bid always pointing out that each initiative proved that it is able to improve its situation as an independent company. For example it acquired online video player Maven Networks announced its social network OneConnect mobile service re launched its video site and introduced Yahoo Buzz a ! social news site that has been very well received. It also announced AMP a new advertising management platform that it says will significantly simplify buying and selling ads online and that will roll out in phases starting in s third quarter and continuing into . Yahoo also added video to Flickr and joined Google s OpenSocial project of common APIs for social networking applications. It also recently announced its most ambitious plan yet to take advantage of the popularity of social networking. Yahoo Open Strategy YOS calls for the company to swing wide open the doors of its Web platforms to let outside developers create applications across its network of sites starting with its search engine via a beta project called Search Monkey. Of course there have been also reminders of why the company found itself an acquisition target. The most concrete of these reminders was on Feb. when Yahoo started laying off about staffers. Meanwhile prominent executives like Bradley Horowitz vice president of product strategy voluntarily departed in Horowitz s c! ase to arch rival Google. Weaker Chance With Time As time passed Microsoft s hopes of a swift acquisition and integration evaporated. Ballmer maintained all along that the offer was fair and seemed perplexed that Yahoo didn t jump to accept it. At the prospect of a dragged out proxy fight to be followed by a complicated and lengthy integration of MSN and Yahoo Ballmer apparently grew increasingly disenchanted. If Microsoft had plus billion to spend on Yahoo it can certainly go shopping for the many startup and niche companies that have gained traction in the Web . space in areas like social networking social news video Web hosted applications and mobile advertising. Considering Ballmer s well known competitive nature he will dust himself off and draw up another plan because one thing is clear while he is giving up on acquiring Yahoo he is certainly not giving up on his dream to top Google in online advertising particularly in search. We have a talented team in place and a c! ompelling plan to grow our business through innovative new services and strategic transactions with other business partners. While Yahoo would have accelerated our strategy I am confident that we can continue to move forward toward our goals Ballmer said in Saturday s statement. We are investing heavily in new tools and Web experiences we have dramatically improved our search performance and advertiser satisfaction and we will continue to build our scale through organic growth and partnerships said Kevin Johnson Microsoft president for platforms and services in the statement. As of the end of s third quarter Google had almost percent of the U.S. Internet advertising market up from almost percent in s third quarter according to IDC. Meanwhile Yahoo s share during this period dropped to . percent from . percent while Microsoft s declined to . percent from . percent according to IDC. In search usage Google held a commanding . percent of queries worldwide followed by Yahoo in a very distant second place with . percent according to comScore . Micro! soft ranked fourth with . percent after Baidu with . percent. In November Yahoo ranked first in the U.S. in display ad impressions with a percent share while Microsoft came in third with . percent after News Corp. s Fox Interactive . percent according to comScore. Google took seventh place with percent. 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