Friday, February 01, 2008

Microsoft Just Couldn't Resist!

In a letter to Yahoo 's board, Microsoft CEO Steve Ballmer said "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."

Yahoo responded by saying "we will consider it" (my words not theirs) A combination of Microsoft and Yahoo has huge implications for eBay as Yahoo and eBay are partnered in many businesses around the world. If the deal does get finalized, look for Microsoft to sell off segments of the Yahoo business and eBay could be a buyer (Yahoo Merchant Business, Yahoo's Alibaba Stake and Yahoo Japan Auction ownership).

One problem I see with this proposed combination is the clash in cultures. Microsoft is used to doing business in a certain way and my guees is that Yahoo employees would have difficulties being assimilated. Microsoft is looking for $1 billion in cost synergies so even though Yahoo has announced job cuts look for more down the road.

If this deal does get approved and I can't see any way that doesn't happen, Microsoft should begin selling off pieces of Yahoo that are not part of their Core competency. Recently a former Yahoo Executive Ali Diab said "When you look at the company it's clear that the leadership doesn't know what to do," said Diab. "Yahoo needs to go to back to the basics and focus on the things it's very, very good at. When you visited the main page it was clear that they were good at aggregating and compiling information."

Now John Donahoe of eBay can work out a deal with the new Microsoft/Yahoo. How about Skype and some cash for Microhoo's Commerce and Auction properties?

Update: Here is the transcript from the Microsoft/Yahoo conference call. Very interesting read.

Update on the Update: More inside scoop on the Microsoft bid for Yahoo from the Silicon Alley Insider

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