Two years after Microsoft first proposed buying Yahoo, the software giant has extended an offer to purchase Yahoo for $44.6 billion in stock.
At the same time, Yahoo announced that its chairman since 2001, Terry Semel, has stepped down from Yahoo’s board of directors, effective yesterday. Roy Bostock, a board member since May 2003, was elected to serve as Yahoo’s succeeding non-executive chairman.
Though Microsoft and Yahoo had discussed a possible deal in the past (widely rumored and now confirmed by Microsoft), Yahoo described this recent offer as unsolicited. Yahoo issued a brief statement saying that its board would carefully consider the offer.
During the last two years, the highest amount Microsoft was rumored to have offered for Yahoo was $80 million – which Yahoo was reported to have rejected as too low. But in the two years since that rumored offer, Yahoo’s stock price has fallen significantly, from around $34 to the $18 level. News of the offer drove the price up past $27 by mid-day.
Given Yahoo’s recent stock price, Microsoft’s offer of $31 per share must be considered by investors to be at a premium, and to Microsoft, $44 billion might now seem a bargain. Even at that price, the purchase would still rank among the Top 20 most expensive takeovers.
Microsoft released a copy of its offer to Yahoo (text here; subscription to NY Times required), signed by CEO Steve Ballmer, in which Microsoft made its case for the merger: “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.”
The “one player” referred to is Google, which dominates the online advertising business. Microsoft’s offer to the market at large is that it can succeed where Yahoo has so far been failing by making the combined Microsoft and Yahoo competitive with Google.
Microsoft said it anticipates “synergies” in the form of scale economics, expanded R&D capacity, operational efficiencies and “emerging user experiences,” which Microsoft said might include new services or features in video, mobile services, online commerce, social media and social platforms.
The combined entity would be able to layoff employees and reduce combined capital spending and R&D spending. Microsoft calculates that those “synergies” will save $1 billion each year.
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