Earlier this year, Microsoft offered to purchase search engine company Yahoo, however, the board of directors of Yahoo shot the offer down beause it ‘massively’ undervalued the company. This ignited an acquisition dance that took a few months, and rumours were abound as to what either of the two would do next.On April 21st, Microsoft set a three week deadline for Yahoo to join them at the negotiations table. Apparently, talks broke down Saturday, when Yahoo aimed for USD 37 per share, while Microsoft did not want to offer more than USD 33. Consequently, Microsoft has withdrawn its proposal to acquire Yahoo, and detailed its reasoning by publishing the letter Microsoft CEO Steve Ballmer sent to Yahoo CEO Jerry Yang.
In the letter, Ballmer writes:
I am disappointed that Yahoo! has not moved towards accepting our offer. I first called you with our offer on January 31 because I believed that a combination of our two companies would have created real value for our respective shareholders and would have provided consumers, publishers, and advertisers with greater innovation and choice in the marketplace. Our decision to offer a 62 percent premium at that time reflected the strength of these convictions.
In our conversations this week, we conveyed our willingness to raise our offer to USD 33.00 per share, reflecting again our belief in this collective opportunity. This increase would have added approximately another USD 5 billion of value to your shareholders, compared to the current value of our initial offer. It also would have reflected a premium of over 70 percent compared to the price at which your stock closed on January 31. Yet it has proven insufficient, as your final position insisted on Microsoft paying yet another USD 5 billion or more, or at least another USD 4 per share above our USD 33.00 offer.
Ballmer went on to explain that they will not take the offer to Yahoo’s shareholders, which would lead to a protracted proxy contest and and an exchange offer, while in the meantime, Yang would make Yahoo a less desirable option for Microsoft – by pursuing a deal with Google. Ballmer lists various reasons why that would make Yahoo a less desirable option. One of those reasons is even a tad bit ironic:
It would raise a host of regulatory and legal problems that no acquirer, including Microsoft, would want to inherit. Among other things, this would consolidate market share with the already-dominant paid search provider in a manner that would reduce competition and choice in the marketplace.
Ballmer ends the letter by stating that he “still believe[s] even today that our offer remains the only alternative put forward that provides your stockholders full and fair value for their shares. By failing to reach an agreement with us, you and your stockholders have left significant value on the table,” followed by a slightly bitter, “but clearly a deal is not to be.”