Microsoft Makes Unsolicited Hostile Bid to Buy Yahoo

It’s been rumored for a long time, but now it’s reality.

Microsoft has made an unsolicited $44.6 billion bid for Yahoo. The bid, which would consist of cash and Microsoft stock, values Yahoo shares at $31 a share, a 62% premium on Thursdays closing price.

Michael Arrington, of Techcrunch, stated during his appearance on Fox Business this week that Yahoo could face a takeover by Microsoft as part of an ad play, and he was right. Microsoft cites online advertising as being one of the key benefits of the acquisition, saying that “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 emphasis is mine but it’s another key point: Microsoft + Yahoo = a stronger competitor to the Google borg.

Microsoft has previously shown an interest in Yahoo, with reports in May 2007 saying that Microsoft had approached Yahoo about a friendly takeover.

As follows, the letter from Microsoft to the Yahoo board, there’s also a conference call at 8:30am EST where we hope to get more details.

January 31, 2008

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 $31 based on Microsoft’s closing share price on January 31, 2008, payable in the form of $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 $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

Additionally, Microsoft's $44.6 billion bid for Yahoo may end up putting other companies in play. High on the list of potential targets is AOL, which is the middle of a turnaround effort by its parent company, Time Warner.

AOL has long been the subject of takeover speculation, but that chatter is bound to become deafening with Friday's move by Microsoft.

Shares of Time Warner were up as much as 7 percent in pre-market trading, suggesting that investors may see AOL a much more enticing prize now.

Google may be among those who take a fresh look at AOL, whose businesses include an advertising platform as well as an Internet service and a Web site. Google already owns 5 percent of AOL, and it may feel compelled to make a dramatic move now that two rivals, Yahoo and Microsoft, may be joining forces.

Time Stops at Grand Central

In this video clip, the Improv Everywhere group brings 207 apparently normal people into Grand Central Station, whereupon they all freeze, at exactly the same instant, for five minutes, standing stock still, as though they were caught in some kind of time-loop. Around them, the Grand Central crowd looks on in wonderment, trying to figure out what's going on -- a little scared, but delighted too. When the frozen hundreds all begin to move again at the same instant, the crowd gives them a standing ovation.

We got great reactions from the folks who encountered us. Strangers started talking to each other, trying to figure out what was going on. With wireless microphones hidden in our shirts, a few agents and I struck up conversations with folks. I convinced one guy to grab a cell phone from a frozen woman's hand. He did it, laughing uncontrollably as he gently put it back in her hand. My favorite reaction was from a female cop who witnessed the whole thing from behind her NYPD recruitment booth: Me: Do you know what that was?
Cop: I have no idea! That is the craziest shit I've ever seen in my life, AND I'M A COP!
Me: Ha. Yeah, it was weird.
Cop: You wanna sign up to be in the NYPD?
Me: No thanks.

Why I Left Print Media for Digital

Jennifer Woodard Maderazo wrote a piece for Mediashift about the oft discussed topic of the print to digital shift that many have opined about for years. She solicited comments prior to this piece via Twitter and graciously included her questions & my answers as a section of her article.

You Shift, I Shift, Others Don’t

Blogger and web designer Joel Housman told me that — like my experience with PopPhoto — the outdated information is what got him to switch from print to digital. An avid magazine subscriber, Housman dumped Wired, Mac Addict, Maximum PC, Macworld and other print titles for their online equivalents and never looked back. Housman put it this way: “I found that ALL of their content can be had online for months before the print edition gets to me. Why waste the paper? Why read two-month-old news? I stay way more on top of things by scanning the 250+ RSS feeds I watch during the day.”

He says that there are no cons to the switch.

Hey look mom. Thats me! Read the entire article here.

THX

Richardson's dilemma

So who to endorse?

As the highest-ranking Hispanic in the Democratic Party, Richardson's endorsement is being aggressively sought by the Clinton and Obama campaigns. California, Colorado, Arizona, Utah and New Mexico are among the 22 states voting next week, and each have sizable Hispanic electorates. Richardson, who cruised to re-election as New Mexico governor in 2006, is a popular figure in the Hispanic community.

Richardson's torn. He served in the Clinton White House, first as ambassador to the United Nations, then as Clinton's Secretary of Energy. "I have a history with the Clintons," Richardson said. "And I've always liked her. She always seems very genuine." But Richardson considers Kennedy, who's long been respected by Hispanics, as "a mentor." In 1982, when Richardson ran for Congress for the second time -- he lost two years before -- Kennedy flew to Santa Fe and campaigned for him. "That might have been the reason I was elected," Richardson said. And he said he likes Obama, telling a story about how Obama saved him during one of last year's Democratic debates:

"I had just been asked a question -- I don't remember which one -- and Obama was sitting right next to me. Then the moderator went across the room, I think to Chris Dodd, so I thought I was home free for a while. I wasn't going to listen to the next question. I was about to say something to Obama when the moderator turned to me and said, 'So, Gov. Richardson, what do you think of that?' But I wasn't paying any attention! I was about to say, 'Could you repeat the question? I wasn't listening.' But I wasn't about to say I wasn't listening. I looked at Obama. I was just horrified. And Obama whispered, 'Katrina. Katrina.' The question was on Katrina! So I said, 'On Katrina, my policy . . .' Obama could have just thrown me under the bus. So I said, 'Obama, that was good of you to do that.'"

Bill, endorse Barack Obama!

Hillary Clinton's word: It's worth nothing

A New Hampshire newspaper tears into Hillary Clinton for breaking her pledge not to campaign in Florida: "Sen. Hillary Clinton signed a pledge not to "campaign or participate" in the Michigan or Florida Democratic primaries. She participated in both primaries and is campaigning in Florida. Which proves, again, that Hillary Clinton is a liar."

read more | digg story

Poll Vaulting

I love how people continue to claim Billary is the front-runner. That is really kind of funny. She is a front runner is the polls, most of which are done with telephone calls. A number of the telephone polling is done with automated messages. When is the last time you listened to an automated message that called you? I don't even have a home phone (just a cell) and I suspect that large numbers of people don't either. The current numbers are heavily skewed to old voters who like Clinton. They are not a true reflection of who people are going to vote for as seen by their dismal failure to predict the NH and SC contests.

I'm a Virginia voter for Barack Obama

Whether I realized it at the time, or not, I had made this decision in the summer of 2004. Seeing Barack Obama speak before the DNC Covention that year was the first time in my life (I'll be 26 in April) that I had seen a living politician who inspired me. What's more is that his speech surprised my very conservative mother & even elicited a surprised grunt from my moderate father.

As early as spring of 2006 I was walking on the mall with Jacob and we were discussing the viability of the possible Dem candidates for 2008. We discussed Edwards, Obama, Billary, and even Mark Warner of Virginia (who has now announced that he will be Senator Mark Warner come November of 2008, thank you very much [seriously....the RNC is running Jim Gilmore against him? Are they trying to set a new record for biggest landslide defeat? I mean, cmon guys - you're trying too hard. Srsly....]). I was hopeful about Obama but Jacob was reticent about his "electability" in the South. He and I having both grown up in the South, we know as well as anyone what ugly skeletons still lurk in closets there. I kept thinking, sure but the same people that are likely to have racial problems with Barack are the same people who would be voting for a BushClone™ anyway. I told him that my concern was the we would be stupid enough to give Hilary the nomination where, it is without question, she is very very unpopular in certain parts of the country. My parents, for instance, while they aren't enthused about any of the Republican candidates & might actually vote for Barack, are thoroughly opposed to Hilary. It seems like this throughout the South. In Red & Purple states, moderates are willing to come across the isle & vote for Obama but will either stay at home or vote for the other team if its Hilary. Look at South Carolina. Yes there is a large black population there but I don't think the 55% to 27% gap was due to that only - I think the anti-Hilary sentiment plays in there as well.

Anywho - moving on. Other reasons I want prefer Obama over Hilary? Rather than explain myself, I'm going to quote Dave Winer from his blog at Scripting News. If you don't know Dave, & are a geek, well... then you should.  A brief description:

Dave Winer, 52, pioneered the development of weblogs, syndication (RSS), podcasting, outlining, and web content management software; former contributing editor at Wired Magazine, research fellow at Harvard Law School, entrepreneur, and investor in web media companies. A native New Yorker, he received a Master's in Computer Science from the University of Wisconsin, a Bachelor's in Mathematics from Tulane University and currently lives in Berkeley, California.

Anyway - I generally agree with most things he says & think he makes some very very good points in several posts that he has made over the last several weeks.

From January 22nd:

If Bill Clinton doesn't get off the campaign trail, other leading Dems should get out and stump for Obama, to level the field.
I said this on Twitter and Adam Wygle sent a pointer to this site, that says it better than I could.
22nd Amendment: "No person shall be elected to the office of the President more than twice..."

From January 24th:

A couple of weeks ago I didn't really think Bill Clinton would be a problem if HIllary was elected. I thought he might be a curmudgeonly joke of a First Lady. "There he goes again, he's so funny."
Yeah uh huh. Sure.
I didn't think it was an issue until Bill started throwing the mud so aggressively. Then I noticed that Hillary was talking about the first two terms as a plural accomplishment, as if she were in office then. The more he attacks and the more she takes credit for the first two terms, the more I think they're fucking with the Constitution.
Further, there are good reasons why the first lady (or first spouse) isn't actively involved in running the government, so we don't have to understand how good their marriage is, and they get a tiny bit of privacy. Then we remember how their marriage was in the middle of everything when they were in charge, and god damn we don't need that mess now. We've got so many other things to deal with.
I'm so opposed to them that depending on who the Republicans nominate I could actually see myself voting for a Republican if Hillary is nominated. I can't believe that after listening to her on Meet The Press a couple of weeks ago I was almost ready to vote for her. What a mistake that would have been.

From January 24th:

I was totally on the fence until they started saying he said things he didn't say. Maybe I could have ignored it if he hadn't been saying things we need him to say, imho. The reason people running for office don't try to express complicated ideas is because people like the Clintons will spin it with confusion, and try to convince us he said something idiotic, corrupt or naive.
And even that wouldn't be so bad, but the insult of the Clintons isn't that they're playing unfairly to defeat a good candidate, but they're insulting our intelligence or saying we're ignorant. The only way we could misunderstand what they're doing is if we didn't understand what Obama said, or if we didn't bother to listen. Speaking for myself only, neither are true.
To be clear, Obama said something that Pat Moynihan said first, a NY Democrat known for his intellect. He said that the Republicans had become the "party of ideas." Neither Moynihan or Obama said the ideas were good, or supportable, just that they had some.
The Democrats, Obama said, were not known for having ideas. I would agree with that. Further, the most effective Presidents have been those who could express simple important truths in ways that got people to listen and act. The greatest Presidents are the ones who did that, and who led us to a good place or a necessary one. The two outstanding Presidents in recent history are Roosevelt and Kennedy, both Democrats. That we have a candidate this year who aspires to be a Roosevelt or a Kennedy is something I support. If he doesn't win because the electorate prefers a technocrat and workhorse (Hillary Clinton) so be it. But I'll never forgive the Clintons if they win by dragging our aspirations down into the mud, which after all is what they did when they were in office.
Who knows how their marriage works, and after all this time, who wants to know? I sure don't. But that's becoming a central issue in the 2008 election, as it becomes more clear that the Clinton family is running for a third term, circumventing the 22nd Amendment of the Constitution. It's a bad idea.
If we want to do a great job of digging out of the Bush mess, we'regoing to need great leadership and we're going to have to rally behind and support our leader. Now that the primary campaign may well be entering its final phase, it's clear we're now at a fairly historic moment. My vote goes not just for change, but for hope. Obama might not be the most qualified at a technical level, but we can make up for that. We the people, this is our country, to make something of, or to give up on. A vote for the Clintons is giving up on our greatness. A vote for Obama says "Let's keep going."

From January 27th:

It was an interesting election until the Clintons started calling Obama the nice young African-American candidate. Yeah, I lived in the south long enough to understand what that means. When I went to Tulane I was often explained as soandso's Jewish friend Dave. It meant that I could come over for dinner, but there would never be a marriage.
I should say The Old South. The problem for the Clintons is that the country has changed, as recently as the generation that's now in its early 20s. Because of my experience at Harvard, I know quite a few of them, and I promise you, race doesn't mean to them what it meant when I was their age. To them, this country is a melting pot where we've not only accepted blacks and Hispanics, but people from incredibly far away with incredible complexions, hair, clothes, traditions and names. Amazingly, it's still America.
This time around a young African-American with a funny name is very mainstream, so much so that the blatant appeal racism of the white-haired old man is as ridiculous as the praise Trent Lott gave to the almost-dead holdover from the Old South, Strom Thurmond.
The problem for Clinton is actually much worse, we now saw how she'd govern. Let's say a young African-American Senator from Illiinois got in the way. Would she argue the issues with him in a respectful way? Why bother when you can smear him into silence. Now she spins around like her husband oblivious to what the rest of us suspected, and now knows for sure. If there isn't now a landslide of support for Obama, from all segments of the Democratic Party and from many Republicans, then our country truly is without hope. I suspect that's not what will happen, and we'll see the same kind of weak attempt at redemption that Trent Lott tried after his fiasco. It won't work, because, as with Lott, we've seen too much.
Now do we know that Obama would be any different? We don't. My cynical side says of course he's just like the Clintons say. "Give me a break" -- it's a "fairy tale." (BTW, I'm quoting the Clintons accurately, a form of respect they don't practice.) Maybe they're right. Maybe this is the last (futile) gasp of hope in America for America. Okay, maybe so. But I'm willing to give it one more try. I think it would say to the rest of the world that America has caught up with reality. Look at how we've changed. Maybe they'll put pictures of Obama in their public buildings as they did with JFK. I could think of worse things. (Caroline Kennedy thinks it's possible.)
What a fantastic way to recover from Bush, who so completely represented the greed and arrogance and uglyness of America, to reinvent ourselves in the image of our best, in the image of hope.
Hope, that's the difference, and it's not just a word. We've all been disempowered during the Clinton and Bush years, sidelined. I remember when I gave up on Clinton, it was during the brightest period of hope for the web, when they passed a compromise that said that the First Amendment didn't apply here. There are some things that are so important that you can't compromise on them. It was then that I knew that Clinton (and Gore) were phonies. Maybe Obama isn't. I never thought I'd get another chance to use my vote to say, along with so many other Americans, that we still believe the bullshit they taught us in school and that our grandparents taught us, and that the flag says to us every time we think of what it means. There's a reason this country is so great. We forgot it. Let's remember.
Bill Clinton wanted us to think well of him when he spoke at Davos in 2000. I choose to remember what he said then, Find A Shared Vision. If by any chance he should read this, I'd say it's time for you to not just say those words but to live them.

By the way: the above post by Dave made it to the Huffington Post the next day.

From January 28th:

Most of what Chris Matthews says is mindless trash, but today he pulled out a great analogy immediately after Ted Kennedy's stirring endorsement of Obama.
He compared Hillary Clinton to the character Salieri in the movie Amadeus. Until Mozart came along he was the leading composer in Vienna, but he was just a workman, a technician. Mozart had inspiration, feeling, the spirit. Salieri, even though he lived a long life and Mozart died young, is a footnote to Mozart's lasting greatness.
Matthews nailed it.
Maybe this makes up for his calling the voters of New Hampshire racists because he and every other pundit read the polling data wrong.

This was a very very long post & I understand if few of my readers will consume it all, however, for the few of you that might read it in its entirety I am glad. I thought it was a post that needed to be written.

Please vote for Barack Obama: its the medication this country needs to get over Dubya.