Yahoo! and Microsoft are at it again …


Yahoo! rejected a joint proposal from Microsoft and Carl Icahn, submitted on Friday evening, for a complex restructuring of Yahoo! that would include the acquisition of Yahoo!'s search business by Microsoft.

Yahoo! issued a statement saying it was given less than 24 hours to accept the proposal, the fundamental terms of which Microsoft and Icahn made clear they were unwilling to negotiate.

Yahoo!'s reasons for rejecting the proposal included:

  • Yahoo!'s existing business plus its recently signed commercial agreement with Google is better value, less complex and less risky than the Microsoft-Icahn proposal.
  • The Microsoft-Icahn proposal would preclude a potential sale of all of Yahoo! for a full and fair price.
  • The Microsoft-Icahn proposal would require the immediate replacement of the current board and removal of the top management team at Yahoo!, which would destabilise Yahoo! for the up to one year it would take to gain regulatory approval for the deal.

According to Yahoo! chairman Roy Bostock, the Microsoft-Icahn alliance has anything but the interests of Yahoo!'s stockholders in mind.

"After negotiating among themselves without the involvement of Yahoo!, Carl Icahn and Microsoft presented us with a ‘take it or leave it' proposal under which we would be required to restructure the company, hand over to Microsoft Yahoo!'s valuable search business and to Carl Icahn the rest of the company, giving us less than 24 hours to respond. It is ludicrous to think that our Board could accept such a proposal. While this type of erratic and unpredictable behaviour is consistent with what we have come to expect from Microsoft, we will not be bludgeoned into a transaction that is not in the best interests of our stockholders."

Yahoo! suggested that a transaction to acquire the whole company would be more straightforward and less risky, and indicated that an offer of $33 per share would be considered.

Microsoft promptly issued a response, accusing Yahoo! of being somewhat less than truthful.

Microsoft claims that discussions had taken place prior to the Microsoft-Icahn offer being submitted, and Roy Bostock (Yahoo!'s chairman) not only said that a search-only deal could be possible, but encouraged Microsoft to submit a new proposal.

Microsoft said its enhanced proposal, which did not include changes to Yahoo!'s governance, was intended to form the basis for the parties to engage in negotiations over the weekend on a letter of intent and more detailed term sheets.

"This discussion has been mischaracterized as a take it or leave it ultimatum, rather than a timetable in order to move forward to intensive negotiations," said Microsoft.

Further stirring the pot, Microsoft's senior vice president & general counsel Brad Smith took his concerns about the implications of the Google-Yahoo deal on competition, Internet innovation, consumer choice and privacy issues to Congress.

Testifying in front of the Senate Judiciary Committee Subcommittee on Antitrust and the House Judiciary Committee Antitrust Task Force, Smith questioned the legality of the deal, saying that it would put Google in a position to control prices on up to 90% of all Internet search advertising, and to control the gateway to the Internet (searches), which has significant privacy issues.

The Google/Yahoo! deal by numbers:

More than 7.8 billion search queries were conducted in the US in May 2008. Source: Nielson Online, May US Search Share Rankings; June 19, 2008]

An estimated 65% of online shoppers conduct product research using search engines. [Source: iCrossing, How America Searches: Online Retail at 2; Sept. 24, 2007]

Online advertising expenditures expected to exceed $27bn in the US in 2008, and to reach $42bn by 2011. [Source: EMarketer, Search Marking, the Behemoth Online Advertising Format; Feb. 2008]

Search advertising revenues reached $8.6 billion in 2007 and are expected to jump to almost $16.6 billion by 2011. That is comparable to both radio and cable advertising, whose revenues each totalled about $20 billion in 2007, but search advertising is growing much faster. [Source: EMarketer, Search Marking, the Behemoth Online Advertising Format; Feb. 2008]

Google accounts for approximately 70% – 75% of search queries and search advertising revenue. [Source: EMarketer, Search Marking, the Behemoth Online Advertising Format; Feb. 2008]

Google's market capitalisation is the size of Coca-Cola's and Boeing's combined. Source: Drake Bennett, Stopping Google, Boston Globe; June 22, 2008]

The FTC deemed Google ‘the dominant provider' in the search advertising market in December 2007, and concluded that other forms of advertising (online or offline) should not serve as a basis to eliminate concerns about Google's dominance in search. [Source: Statement of the FTC concerning Google/DoubleClick at 3, FTC File # 071-0170; Dec.20, 2007]

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