Microsoft Corp. made a bold move Friday to take over Yahoo! Inc. If the deal goes through, the US$42 billion bid could help the software and technology company gain a major partner in its attempt to take on Google, which it has been trying to topple alone without success.
The unsolicited offer was announced Friday in a letter to Yahoo's board of directors from Microsoft CEO Steve Ballmer. The offer is comprised of $31-a-share of cash or Microsoft stock, and was 62 per cent higher than Yahoo's Thursday closing price.
The search and advertising market that Microsoft is vying for is expected to nearly double in worth by 2010 to $80 billion. So far, Google has outpaced Microsoft in search engine users in every quarter since Google's initial public offering in 2004. In the latest three-month period, Google made a profit of US$1.21 billion, with sales going up 52 per cent.
Analysts say Google's rise could threaten Microsoft's future. Microsoft is the world's leading technology company, but that may not be the case in the years ahead unless it can generate more revenue online from advertising. It also needs to create a more loyal Internet audience which increasingly looks to the Internet for services and computer programs.
In the 1980s and 1990s, Microsoft overtook IBM Corp. when technology shifted away from mainframe computers to personal computers. Industry insiders say there are real concerns now that similar market and technological shifts could knock Microsoft off its leading position if it doesn't take appropriate steps.
"Microsoft has to do this deal. It's a battle that Microsoft needs to win," said Jonathan Yarmis of AMR Research, a technology consultation firm.
Canadian connection
The takeover bid could have implications for Rogers Communications here in Canada. It could become a Microsoft partner if the takeover goes through. Rogers, which owns one of Canada's largest Internet services, currently has a close relationship with Yahoo to manage its e-mail service.
Microsoft's MSN also has a similar relationship with Rogers rival Bell Canada's Sympatico. The merger may create a situation where the two Canadian companies have the same American partner.
Not first takeover attempt
Ballmer's letter referred to last year's attempt by Microsoft to take over Yahoo, which was rebuffed by former Yahoo chairman Terry Semel.
"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,'" Ballmer wrote.
"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," Ballmer added.
The deal offers Yahoo shareholders a choice of cash or a fixed number of Microsoft common shares, totalling one-half cash and one-half stock.
The Redmond, Wash.-based Microsoft expects to see at least $1 billion in savings if the merger goes through, adding it expects the takeover to be cleared by regulators and close in the latter half of 2008. It plans to offer retention packages to Yahoo's engineers, management and employees, who are currently headquartered in Sunnyvale, Ca.
On heels of chairman's resignation
According to Business News Network's Michael Kane, Microsoft is prepared to deliver a draft deal immediately and start friendly talks as soon as possible. He said the offer is notable as it comes a day after Semel resigned from his post at Yahoo, where he was seen as losing too much market share to Google.
"(Semel) joined Yahoo as CEO in 2001 but was unable to stop Google from scooping up a lion's share of internet advertising dollars," Kane told CTV's Canada AM. "He began to negotiate his departure months ago when it was obvious he was losing the fight."
Semel also formerly held Yahoo's CEO portfolio, but surrendered the title seven-and-a-half months ago under pressure from shareholders.
Prior to Semel's resignation, Yahoo co-founder and CEO Jerry Yang said the company will cut 1,000 jobs, or seven per cent of its workforce, in an effort to reduce costs.
Meanwhile, Microsoft forecast a rosy 2008 last week after surpassing Wall Street's forecasts for a second consecutive quarter.
With files from The Associated Press and The Canadian Press
