Microsoft prepared to fork out US$44.6B for Yahoo!

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.

According to Microsoft CEO, Steve Ballmer the online advertising market is growing at a very fast pace, from over $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.

In a letter to Yahoo’s board of directors, Ballmer wrote, “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.”

Ballmer stated, in February 2007, he received a letter from Yahoo’s 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.

Microsoft believes, 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,” he stated.

According to Ballmer a combined Microsoft and Yahoo! will create synergies that fall into four areas; Scale economics; Expanded R&D capacity; Operational efficiencies; 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.
Microsoft’s proposal is subject to the negotiation of a definitive merger agreement and Microsoft 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, it 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,” stated Ballmer.

finance microsoft yahoo