How one company can affect the US stock market

I’m actually quite shock by how one failed bid of Yahoo by Microsoft can affect the US stock market. The total networth of top 5 companies in USA is actually equivalent to 40% of SGX. It’s how much they are worth. Sorry for the digress.

But I think the failed bid is a good thing as Microsoft is just getting to big and if it really acquire Yahoo, they will just monopolise a lot of market. Think about the potential Microsoft can do with 20% search market of Yahoo and almost 80% messenging market when combining MSN and Yahoo messenging.

NEW YORK : US shares swung lower on Monday after Microsoft pulled the plug on its Yahoo takeover bid and fresh record high for oil prices hurt momentum on Wall Street after three positive weeks.

The Dow Jones Industrial Average closed 88.66 points (0.68 percent) lower at 12,969.54 while the tech-dominated Nasdaq composite retreated 12.87 points (0.52 percent) to 2,464.12.

The broad-market Standard & Poor’s 500 index shed 6.41 points (0.45 percent) to 1,407.49.

Al Goldman at AG Edwards said the failure of the Microsoft-Yahoo deal and other possible merger collapses sapped some of the enthusiasm from the market.

“The Street is taking a second look today at the market for mergers,” he said.

In addition to Microsoft-Yahoo, Goldman said: “There is also concern, voiced by an analyst, that Bank of America might back out of its bid to buy (troubled mortgage firm) Countrywide Financial.”

The market got some positive economic data as the Institute for Supply Management’s April non-manufacturing index jumped to 52 percent from 49.6 percent in March, showing expansion in the vast services sector of the US economy.

But Goldman said crude oil’s new records overshadowed the positive news.

New York’s main oil futures contract, light sweet crude for June delivery, surged to an intraday record high of 120.20 dollars following fresh unrest in Nigeria, Africa’s largest oil producer, and rising tensions between the West and Iran.

The benchmark contract closed at an all-time high of 119.97 dollars, a hefty gain of 3.65 dollars from Friday’s close.

Paul Nolte at Hinsdale Investments said that after three strong weeks for stocks, “our short-term momentum indicators point to a market that is stretched and in need of a rest.”

Commenting on the market’s recent gains, Nolte said: “The financial markets are now expecting a short/shallow recession and are pricing stocks accordingly - heaven forbid any disappointments.”

Leading the downside, Yahoo plunged 15 percent to 24.37 dollars. Several major banks lowered their outlook on the Internet giant, including Citigroup, which advised stockholders to sell.

Briefing.com analyst Jeffrey Ham said Yahoo shares were under pressure “as confounded investors try to assess the company’s muddled future.”

“Without a merger or distinct strategic alternatives, Yahoo will most likely continue to lag a more innovative and faster growing Google,” he added.

Shares in Microsoft, the world’s biggest software company, fell a modest 0.55 percent to 29.08 dollars after walking away from its offer for Yahoo.

Citigroup analyst Brent Thill said Microsoft’s move “is a win for its shareholders in the near term as investor attention will revert back to a strong enterprise product cycle opportunity.”

Google, the leading Internet search firm that would be threatened by a tie-up, rallied 2.34 percent to 594.90 dollars.

Bank of America dropped 2.06 percent to 38.97 dollars and Countrywide Financial slid 10.37 percent to 5.36 dollars amid concerns the deal to buy up the troubled mortgage giant may fail.

Sprint Nextel meanwhile surged 10.52 percent to 8.72 dollars amid swirling reports about the future of the telecom giant. One report said Deutsche may be preparing a bid for the US firm, and another said the company may spin off its Nextel arm and concentrate on the WiMax wireless Internet service in a deal with Clearwire.

UAL, the parent of United Airlines, skidded 5.60 percent to 15.00 after a Wall Street Journal report saying it wants to tie up with smaller rival US Airways, down 4.59 percent at 8.32.

Bonds were mixed. The yield on the 10-year US Treasury bond held steady from Friday at 3.845 percent and that on the 30-year bond rose to 4.581 percent from 4.565 percent. Bond yields and prices move in opposite directions. - AFP/de

Extracted from ST

Microsoft Drops Bid for Yahoo. So what’s next?

It’s quite a logical that this scenario will happen. However, if they want to do it the hostile way, will turn out to be too slow and costly (in analogy, it’s kuje attacking a fortress). They will have to find another way to buy over Yahoo through some other ways.

They can either buy over the company at a ridiculously high price

or

secretly purchase the stocks over the market to get more control of the company.

But either way, it will still be too long to Microsoft’s liking.

Microsoft Drops Bid for Yahoo: “The sides fail to agree on price. Microsoft CEO Ballmer says going hostile would take too long and a pending Yahoo-Google deal is an obstacle

”

(Via BWO > Daily.)

Microsoft could nominate proxy slate of directors for Yahoo, says report

Acquisition of Yahoo has stalled for quite some time and Microsoft has been taking quite a laid back stance towards such issue. Yahoo on the other hand has been doing stuff to piss Microsoft off such as the use of Adsense. For Microsoft, Yahoo acquisition must go through and they’re very shrewd not to allow people squeeze more money out of them.

A proxy takeover is a possibility but it means that time is needed to change the board of directors. By that time, Yahoo might have done enough damage sabotage the deal. It wouldn’t be nice if Microsoft takeover Yahoo and most of their revenue comes from Adsense.

Microsoft could nominate proxy slate of directors for Yahoo, says report: “NEW YORK : Microsoft could make its next move against Yahoo Wednesday with the software giant likely to try and replace Yahoo’s board of directors, the Wall Street Journal reported.”

(Via CNA > Business News.)

Microsoft CEO sets 3-week deadline for Yahoo deal

It is quite rare to see Microsoft so rash and pushy. Seems like they are already fed-up negotiating with the Yahoo board and decide to go the tough way - You’re either with me or against me. Haha especially when the news came after the China news on wanting Yahoo China to be splitted as a separate deal because of the law on anti-monopoly.

Since they are already so pushy, may as well wait a little bit more time for Microsoft to up their bid. I believe Microsoft has quite a few tricks up their sleeve and is waiting for the Yahoo deal to go through first.

Microsoft CEO sets 3-week deadline for Yahoo deal: “SEATTLE/SAN FRANCISCO - YAHOO has three weeks to accept Microsoft Corp’s US$31 (S$43)-a-share cash-and-stock offer or Microsoft may lower its bid and take its offer to Yahoo investors, Microsoft said on Saturday.”

(Via Straits Times Interactive - LATEST NEWS.)

China Law Could Impede Microsoft Deal for Yahoo

This will definitely put a brake in Microsoft acquisition of Yahoo and to reconsider their bid. If China Yahoo needs to be separated from the main deal, Microsoft may not be bidding at such a high price. Seems like this is good news for Google.

China Law Could Impede Microsoft Deal for Yahoo: “In August, a Chinese antimonopoly law takes effect that will extend the nation’s economic influence far beyond its borders.”

(Via NYT > Technology.)

Internal Microsoft memo may calm Yahoo is just another bluff

A post “No major layoff when Microsoft merge with Yahoo. Are you kidding?” just yesterday. The memo mentioned about Microsoft intention to take good care of Yahoo people if they takeover the company.

Here’s some of the comments
Ntt: But why do the share holders care if there will be any change in the company or not, esp once they sell it.

Neo: I think the merger will only benefit the shareholders not yahoo as a company (which includes their employee). I agree with NTT the shareholders won’t care whether is there any changes or restructuring of the company. As for employee, i am skeptical that they can still secure their jobs.

Here’s another article from BloggingStock, with an analysis of why Microsoft mentioned is just a bluff that support the comments by NTT and Neo. In short,

1. Microsoft is known to be independent and solve problems alone.
2. This deal will only benefit the shareholders and nothing more.

According to The Wall Street Journal (subscription required), ‘Kevin Johnson, president of Microsoft’s Platforms and Services Division, reiterated the Redmond, Wash., software maker’s reasons behind its unsolicited offer, writing that a combination would provide a compelling alternative in search and online advertising.’ The note goes further to indicate that Microsoft values both the Yahoo! brands and the technical skills of its engineers.

Yahoo! should not take the memo seriously. It would be hard to name a company that Microsoft has purchased that still maintains its own brands and independent operations. Bill Gates has said that the software company will put its full engineering skill behind an effort to build better search technology than Google (NASDAQ: GOOG) has. It may be an audacious and arrogant approach to catching the industry leader, but Microsoft has never looked for outside help to solve its most urgent problems.

All Yahoo! shareholders can look for in the generous Microsoft buy-out offer is a good payday. The world’s largest software company looks at Yahoo! as a step in advancing its own agenda and nothing more.

Douglas A. McIntyre is an editor at 247wallst.com.

(Via BloggingStocks.)

Microsoft email prepares workers for takeover of Yahoo

Well we already know that Yahoo is waiting for a higher bid, it is just not wise for it’s shareholders to make a big hoo haa to sell the company straight away. Ain’t it better to wait just a big longer so that you can get $9/share? This just defy logic. The only reason I can think of is the shareholders are fearing the recession may drive the share price down instead. Well maybe….

Will Microsoft tactic work? I believe it will but they will pay a heavy price in order to get it.

Extracted from CNA

SAN FRANCISCO - A Microsoft executive on Friday sent workers an upbeat email outlining a vision of how the software giant expects to take over Yahoo and merge the companies’ cultures and resources.

Yahoo spurned Microsoft’s 44.6-billion-dollar bid for the veteran Internet firm on February 11. Microsoft is reportedly planning a hostile takeover bid if Yahoo’s board of directors doesn’t change its mind.

In a message to employees, Microsoft platform and services division president Kevin Johnson shared “a perspective of the process going forward”.

“We look forward to a constructive dialogue with Yahoo’s board, management, shareholders, and employees on the value of this combination and its strategic and financial merits,” Johnson wrote.

“Once Yahoo and Microsoft agree on a transaction, we can begin the integration planning process in parallel with the regulatory review.”

If Yahoo capitulates, the transaction would likely close in the second half of this year, according to Johnson.

The email is a tactic from the playbook of Yahoo chief executive Jerry Yang, whose messages urging employees and stock holders to have faith in the company and its board have gone public after being filed with US regulators.

Johnson’s missive comes on the same day that pension funds for Detroit city workers filed a civil suit charging Yahoo with betraying its duty to stockholders by resisting Microsoft’s advances.

In an effort to avoid being gobbled up by Microsoft, the struggling Internet firm has reportedly explored alliances with Google, Time Warner-owned America On Line, and social networking website MySpace owned by News Corp.

Some Yahoo stock holders in California are suing the firm for not accepting an offer Microsoft made to buy Yahoo early last year, when the stock price was higher.

Microsoft is currently offering a combination cash and stock deal initially valued at 31 dollars per share but which fluctuates with the price of Microsoft shares.

Yahoo’s board is said to believe the company is worth at least 40 dollars per share, a price that would drive up Microsoft’s cost by more than 10 billion dollars.

Microsoft is adamant its offer is “full and fair” and argues that the merger would create a needed and “compelling” alternative in an online search and advertising market ruled by Google.

“I have personally met with top executives of the major media companies, and I know there is a desire for more competition in search and online advertising,” Johnson wrote.

Google has condemned Microsoft’s takeover bid as an attack on the freedom of the Internet.

While not promising that a merger would not result in the elimination of redundant jobs, Johnson said Microsoft wants to hold on to top talent and is so large it can absorb people in other parts of its operation.

In an effort to keep Yahoo employees from bailing out in the face of a Microsoft takeover, Johnson promised “significant rewards and compensation” will be given to workers at a combined company.

Johnson brushed aside speculation that Microsoft’s historically stuffy corporate culture would clash with Yahoo’s relaxed, playful California style.

“We would have an opportunity to bring together the best of both companies,” Johnson wrote.

“Some aspects of the two cultures will naturally merge quickly and some will remain unique in the near-term and merge more slowly over time.”

Yahoo would remain in Silicon Valley, where Microsoft has a campus, according to Johnson. Microsoft’s headquarters is in Redmond, Washington.

Until a deal is cut, Microsoft employees should treat Yahoo workers as rivals, not budding workmates, the email urged.

“It’s important that Microsoft employees not speculate with Yahoo employees about the proposal or about what a deal would mean for the combined company,” Johnson wrote.

“Prior to the close of the transaction, we must continue to compete with Yahoo as before.” - AFP/ir

No major layoff when Microsoft merge with Yahoo. Are you kidding?

This is a nice political ploy by Microsoft to gain the support of Yahoo shareholders and employees to oust Jerry Yang out of the Board. Since nothing is going to change much, why not sell the company over to Microsoft and get a better support instead. It’s merger will be even bigger than the merger of Google and Youtube and I can’t wait to see the day it happens.

In a business world, I just don’t believe there are people who will do what they do. Remember Steve Jobs and Motorola, Google and Incredimail? It is only time they will throw a hammer over at Yahoo for major changes.

SEATTLE - A TOP Microsoft Corp executive on Friday assured Microsoft and Yahoo employees that there would not be a massive round of job cuts if it succeeded in its proposal to buy the Web pioneer.

Kevin Johnson, president of Microsoft’s platforms and services division, said in an e-mail to employees in his unit that the company would dedicate ’significant rewards and compensation’ to retain Yahoo and Microsoft employees.

‘While some overlap is expected in any combination of this size, we should remember that Microsoft … has hired over 20,000 people since 2005, and we would look to place talented employees throughout the company as a whole,’ he wrote in the e-mail, which was posted on Microsoft’s website.

The e-mail sought to ease some of the concerns expressed by Microsoft and Yahoo employees about a potential merger.

The companies are at a stand-off in Microsoft’s unsolicited bid to acquire Yahoo. Microsoft has offered to buy Yahoo for US$31 (S$43.93) a share in cash and stock, which Yahoo’s board rejected, saying it undervalued the company.

Mr Johnson, whose division would ultimately absorb most of Yahoo, said the company would be ‘pragmatic’ in how to address Yahoo’s computer systems since they are not Windows-based.

In some acquisitions, Microsoft has prioritised continuity, according to Mr Johnson, and the company has worked to make sure the acquired company’s existing systems worked with Microsoft’s own technology infrastructure. — REUTERS

Microsoft-Yahoo! blue screen of death

Lets get a little geeky. Watch out for the blue screen of death when Microsoft buy over Yahoo. Thanks to ambermac for sharing with us.

Microsoft-Yahoo! blue screen of death: ”

Microsoft FINALLY buys Yahoo!
Originally uploaded by The Core-Man.

Corey from Port Richey, FL just sent me this pic, which he mocked up tonight.’ Nice work!

Check out this insightful article re: Microsoft, Yahoo!, and Google.

”

(Via Amber Mac.)

Yahoo possible partnership with News Corp

In any way, out of so many companies, one of them has to sacrifice and joined partnership with Yahoo. Many wouldn’t want Microsoft to get into the search business. Remember Netscape?

Microsoft has successfully entered the gaming industry with it’s Xbox.

The internet with IE.

It is not surprise to see that Google is scared that MS will get into the search business with 20% market share. Is there any other better way for Microsoft to takeover Yahoo other than hostile bid?

But which company in the world can stop this giant from expanding? I can only see them getting bigger and bigger unless the Open Source community is able to create some products that disrupt Windows. Unbuntu, Redhat ooooorrr Solaris? I forgot. There’s a Leopard!

Yahoo discussing possible partnership with News Corp: ”

SAN FRANCISCO - YAHOO Inc is discussing a possible partnership with News Corp in its latest effort to repel Microsoft Corp or prod its unsolicited suitor into raising its current takeover bid, according to a person familiar with the talks.”

(Via Straits Times Interactive - LATEST NEWS.)

Yahoo to Reject Microsoft’s Takeover Bid

It is quite shocking that Yahoo will reject the $31 billion bid. Is Yahoo overvaluing themselves? They are losing market share to Google and unless they have tricks up their sleeve, I doubt they can hold on to their current market share. Well, how many of us use Yahoo instead of Google?

While selling it to Microsoft may not be a good deal. The next option they have is to outsource their search to Google but this will severly undermine their investment in Panama, which they started off with the intention to compete against Google. It is also a no-no move because Yahoo will lose their core business in search market.

My opinion for this move by Yahoo is that it wants to go into a negotiation phase where they could squeeze more money out from Microsoft (minimum expectation of $40B).

Considering that so many people did hate Microsoft, I expect even if they got Yahoo, they will continue to erode their market share.

Yahoo Expected to Reject Microsoft’s Takeover Bid: “Yahoo’s board decided that Microsoft’s $44.6 billion hostile bid undervalues the company, people involved said.”

(Via NYT > Technology.)

Kudos to the people out in the blogosphere in being able to see through Microsoft’s intention right from the start. While Google is eating into Microsoft’s office suite market with its own web office suite available for free on the Internet. It remains to be seen if Microsoft will make their own set of Internet office suite free. It should be quite unlikely as they will be cannabilizing their own market.

Facing Free Software, Microsoft Looks to Yahoo: “Internet-centered programs that compete with the core products of Microsoft are a driver of its bid for Yahoo.”

(Via NYT > Technology.)

Apple may move to protect Yahoo against Microsoft

Now even Steve Jobs is into the battle for Yahoo. Really an unexpected change of events. While Microsoft is willing to go into debt to finance for the acquisition for Yahoo ($44B), this means how valuable they view Yahoo as the platform to delivering applications.

Think about it, Yahoo messenging and Msn messenging is the two highest traffic communication tool while Yahoo mail and Hotmail is also two of the most popular email service around, so practically Microsoft will have almost full control of the email and messenging market. Isn’t that scary?

In the meantime, lets just wait for more news to happen. Maybe Mittal (steel magnate) or some tycoon in the middle east will make the offer. This will really be Interesting.

Another question that is bothering me is what has Apple get to gain from this. Are they just to help? In my opinion this is quite unlikely cos there’s history of Apple collaborating with other companies just to turn their backs on them.

Apple may move to protect Yahoo against Microsoft: “Apple, News Corp., others named as potential suitors for Yahoo as Microsoft makes its bid

Apple and News Corp. may make rival bids for Yahoo to see off Microsoft’s hostile takeover bid for the internet company.

”

(Via Macworld UK.)

Google taking action to stop Microsoft from acquiring Yahoo

Really interesting indeed to see this happening just a few days after the initial announcement. While this is quite expected from Google. Much of the discussion with my friends actually come to the conclusion that even the merger won’t help.

While Google can’t acquire Yahoo in the first place, the very next thing they can do is to disrupt their plan. This is really a brilliant idea but will it be an antidote to the current situation?

Microsoft with it’s tons of cash after acquiring some search market can do a lot of things to disrupt Google. Microsoft outearned Google even now. Imagine Bill Gates just announce their goal of the year is to formulate a plan and to throw all their profits into it for the next few years just to kill off Google.

Maybe this is what Google is afraid of…

Extracted from NYT
By ANDREW ROSS SORKIN and MIGUEL HELFT
Published: February 4, 2008

Standing between a marriage of Microsoft and Yahoo may be the technology behemoth that has continually outsmarted them: Google.

In an unusually aggressive effort to prevent Microsoft from moving forward with its $44.6 billion hostile bid for Yahoo, Google emerged over the weekend with plans to play the role of spoiler.

Publicly, Google came out against the deal, contending in a statement that the pairing, proposed by Microsoft on Friday in the form of a hostile offer, would pose threats to competition that need to be examined by policy makers around the world.

Privately, Google, seeing the potential deal as a direct attack, went much further. Its chief executive, Eric E. Schmidt, placed a call to Yahoo’s chief, Jerry Yang, offering the company’s help in fending off Microsoft, possibly in the form of a partnership between the companies, people briefed on the call said.

Google’s lobbyists in Washington have also begun plotting how it might present a case against the transaction to lawmakers, people briefed on the company’s plans said. Google could benefit by simply prolonging a regulatory review until after the next president takes office.

In addition, several Google executives made “back-channel” calls over the weekend to allies at companies like Time Warner, which owns AOL, to inquire whether they planned to pursue a rival offer and how they could assist, these people said. Google owns 5 percent of AOL.

Despite Google’s efforts and the work of Yahoo’s own bankers over the weekend to garner interest in a bid to rival Microsoft’s, one did not seem likely, at least at this early stage.

For example, a spokesman for the News Corporation said Sunday night that it was not preparing a bid, and other frequently named prospective suitors like Time Warner, AT&T and Comcast have not begun work on offers, people close to them said. They suggested that they did not want to enter a bidding war with Microsoft, which could easily top their offers.

A spokesman for Time Warner declined to comment, as did a spokesman for Comcast. A representative for AT&T could not be reached.

In the meantime, people close to Yahoo said that the company received a flurry of inquires over the weekend from potential suitors. Some people inside Yahoo have even speculated about the prospect of breaking up the company. That could mean selling or outsourcing its search-related business to Google and spinning off or selling its operations that product original content, these people said.

“Everyone is considering all kinds of options and deal on search is one of them,” a person familiar with the situation said.

One person involved in Yahoo’s deliberations suggested that “the sum of the parts are worth more than the whole,” arguing that its various pieces like Yahoo Finance, for example, could be sold to a company like the News Corporation for a huge premium while Yahoo Sports could be sold to a company like ESPN, a unit of the Walt Disney Company.

Executives at rival companies were less optimistic about such a breakup strategy. “No one can get to a $44 billion price,” one executive at a major media company said, “even if you split it into a dozen pieces.”

In making its bid for Yahoo, Microsoft is betting that past antitrust rulings against it for abusing its monopoly power in personal computer software will not restrain its hand in an Internet deal.

In the United States, a federal district court in Washington ruled in 2001 that Microsoft had repeatedly violated the law by stifling the threat to its monopoly position posed by Netscape, which popularized the Web browser. The suit, brought during the Clinton administration, was settled by the Bush administration. But as a result of a consent decree extending through 2009, a federal court and a three-member team of technical experts monitors Microsoft’s behavior.

In 2006, for example, after Google complained to the Justice Department and the European Commission that Microsoft was making its MSN search engine the default in the most recent version of its Web browser, Microsoft modified the software so that consumers could easily change to Google or Yahoo.

In Google’s statement on Sunday, it said that the potential purchase of Yahoo by Microsoft could pose threats to competition that needed to be examined by policy makers.

Google’s broadly worded concerns lacked detailed claims about any anticompetitive effects of the deal, and the company did not publicly ask regulators to take specific actions at this time.

“Could Microsoft now attempt to exert the same sort of inappropriate and illegal influence over the Internet that it did with the PC?” asked David Drummond, Google’s senior vice president and chief legal officer, writing on the company’s blog.

Yahoo and Microsoft declined to comment Sunday. On Friday, Microsoft’s general counsel, Bradford L. Smith, said in a statement: “The combination of Microsoft and Yahoo will create a more competitive marketplace by establishing a compelling No. 2 competitor for Internet search and online advertising.”

Google’s effort to derail or delay the deal on antitrust grounds mirrors Microsoft’s own actions with respect to Google’s bid for the online advertising specialist DoubleClick for $3.1 billion, announced in April.

The strategy is not surprising, considering that any delays would work to Google’s benefit. “Google can tap into all of the ill will that Microsoft has created in the last couple of decades on the antitrust front,” said Eric Goldman, director the High-Tech Law Institute at the Santa Clara University School of Law.

The outcome of any antitrust inquiry will hinge, in part, on how regulators define various markets. Microsoft-Yahoo, for instance, would have a large share of the Web-based e-mail market, but a smaller share of the overall e-mail market.

“The potential concern would be that Microsoft, if it acquires Yahoo, could do on the Internet what it did in the personal computer world — make technical standards more Microsoft-centric and steer consumers to its products,” said Stephen D. Houck, a lawyer representing the states involved in the consent decree against Microsoft.

Yahoo has not made a public statement about the proposed deal since Friday, when it said it was weighing Microsoft’s offer as well as alternatives and would “pursue the best course of action to maximize long-term value for shareholders.”

Carl W. Tobias, a law professor at the University of Richmond in Virginia, said an antitrust review of the Microsoft-Yahoo deal could take a long time and “may well bleed into a new administration with an entire new view on antitrust than the Bush administration.”

Steve Lohr contributed reporting.

Microsoft will own Yahoo eventually

Considering the amount of money Microsoft has, it is quite possible they have their ways and means to win the seat in Yahoo! Without any compeition from Google, I think Yahoo will eventually be owned by Microsoft.

Consider this, how many people can withstand the lure of money. While I don’t want Yahoo to be owned by Microsoft, I also wouldn’t want Google to own it. They are already too big a corporation.

This is another classic case of how the rich gets richer by buying and the poor gets poorer also by buying.

Bear hug letters are an art form. They are designed to put an unwilling takeover target on notice that they are no longer safe, but to fall short of being blatantly hostile.

Microsoft’s bear-hug letter to Yahoo, made public early Friday along with Microsoft’s unsolicited $44.6 billion takeover bid, is no different. It contains all the nice-nice language you typically see in these letters (this is the hug) as well as a warning that there is a bear waiting to come out.

Microsoft states in its letter that:

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.

So, what is Microsoft really getting at? What is the “bear” here?

Yahoo has a shareholders rights plan, also known as a poison pill, with a 15 percent trigger. As a result, Microsoft cannot effectively acquire an interest in Yahoo above that threshold unless it obtains prior approval from Yahoo’s board.

But if the Yahoo board resists Microsoft’s offer, Microsoft can still pursue a hostile bid.

In the face of an unaccommodating board, the only effective option for Microsoft to force Yahoo’s directors to come to the negotiating table or to otherwise acquire Yahoo is a proxy contest.

Here, the timing of Microsoft’s letter is not random. Section 2.5 of Yahoo’s by-laws require that:

For proposals and nominations to be timely, a stockholder’s notice shall be received by the secretary at the principal executive offices of the Corporation in the case of the annual meeting not less than 90 days nor more than 120 days prior to the first anniversary of the preceding year’s annual meeting of stockholders.

Yahoo’s last annual meeting was on June 12, 2007. By my count, the notice date period therefore begins on Feb. 13, 2008, and ends March 14, 2008.

Yahoo’s by-laws and certificate of incorporation prohibit actions by written consent and special meetings.

So, Microsoft can only launch a proxy contest to replace the Yahoo directors at Yahoo’s annual meeting. And if it wants to do so, it has a window from mid-February to mid-March to make such nominations.

Yahoo does not have a staggered board, so all of its directors are up for nomination this year. And, per section 3.3 of the by-laws, in a contested election, directors are elected by a plurality of votes cast. This puts Yahoo rather at the mercy of the bear. It also explains the timing of Microsoft’s offer.

If Microsoft launched a proxy contest, it would be a rather novel thing for a stodgy tech company. According to FactSet SharkWatch, since 2001 there have been only 26 proxy contests in connection with a takeover bid initiated by corporate buyers.

The most recent success story: Roche Holding’s agreement to acquire Ventana Medical Systems in the shadow of a looming proxy contest.

Good luck to you, Yahoo.

Microsoft’s letter to the Yahoo board. How will Google react?

It has been an eventful day for Microsoft and Yahoo. No one knows if Yahoo is willing to sell themselves to Microsoft though. Microsoft has been eyeing the search engine market very long but without success due to the over-dominance of google and their only way to claw back in the game is to acquire Yahoo, the second biggest search engine.

However, are they willing to sell the stock to Microsoft is still another big issue. From various report, people wise, Yahoo and Microsoft have not been in friendly term.

As much as one would wonder, is the merger in anyway going to change the fact that google is still going to dominate the search market for at least another 4-5 years?

How Google is going to react to this situation? How the merger of Microsoft and Yahoo will pose a challenge to their future plan? Why don’t Google buy over Yahoo  to monopolize the search market?
It’s going to be an exciting time ahead for the next few months.

Guardian 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