Microsoft Joins Icahn, Plays Dirty With Yahoo!

Wednesday, July 23, 2008

Steve Ballmers seems pretty desperate to buy Yahoo!, by hook or by crook. Most of the properties or products at Microsoft may appear to have come from acquisition and less from its own innovations (check the list of Microsoft acquisitions). Now, its Yahoo!'s turn. Steve Ballmer, along with the ruthless investor Carl Icahn is out to topple Yahoo!'s board and top management to take control of the company.
The three year old long 'desperate efforts' are still on. While a few months ago Ballmer withdrew his offer to acquire Yahoo!, but now he is back. The growing threat from GNU/Linux as one of the best alternatives to Microsoft's Windows is worrying the company, while Sun's Office Suite is further putting holes in Microsoft's productivity suite business. In the online world Google is already far ahead of Microsoft and Redmond giant is finding ways to somehow bring to existence its software plus service model and for that it needs a stronger online presence, and Yahoo! seems to be the only player it can gallop to achieve that.

However, Yahoo! is fighting back. Yahoo! has once again rejected the Microsoft and Ichan's joint bid to acquire Yahoo!'s search business -- which actually was a decoy as the deal had clauses which required "The immediate replacement of the current Board and removal of the top management team at Yahoo!. The Yahoo! Board believes these moves would destabilise Yahoo! for the up to the one year it would take to gain regulatory approval for this deal." Which could be easily translated into bringing down the fort and open ways for the duo to acquire Yahoo!

The proposal was made on Friday evening and Yahoo! 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. After reviewing the proposal with its legal and financial advisers, Yahoo!'s Board of Directors determined that accepting the proposal is not in the best interests of its stockholders.

The Board's rejection of the proposal was based on a number of factors, including Yahoo!'s existing business plus its recently signed commercial agreement with Google has superior financial value and less complexity and risk than the Microsoft/Icahn proposal. The Microsoft/Icahn proposal would preclude a potential sale of all of Yahoo! for a full and fair price, including a control premium, which was unacceptable to Yahoo!

And the third factor was, the major component of the overall value per share asserted by Microsoft/Icahn would be in Yahoo!'s remaining non-search businesses which would be overseen by Icahn's slate of directors, which has virtually no working knowledge of Yahoo!'s businesses. Fourth factor was the requirement to replace current board and top management.

Ironically, Carl Icahn, who jointly with Microsoft developed and presented this proposal, had previously urged Yahoo! not to sell its search business to Microsoft. Specifically, in an interview on CNBC's Fast Money program, on June 4, 2008, Icahn said, "... it's crazy for this company now to do this alternative deal and give the store away, because obviously, an alternative deal is a poison pill because once you've done an alternative deal and given the search to Microsoft, you don't need Microsoft to buy you anymore. So, that would be a poison pill...."

Roy Bostock, chairman of Yahoo! said, "This odd and opportunistic alliance of Microsoft and Carl Icahn has anything but the interests of Yahoo!'s stockholders in mind. Clearly, Microsoft, having failed to advance in search, is aligning with the short-term objectives of Mr. Icahn to coerce Yahoo! into selling its core strategic search assets on terms that are highly advantageous to Microsoft, but disadvantageous to Yahoo! stockholders. Yahoo's Board of Directors will not allow that to happen. Yahoo!'s Board remains open to any transaction that delivers full value to our stockholders - we just do not believe such a transaction should be dictated by Microsoft and a single short-term investor."

Bostock further added, "Microsoft and Icahn are trying to dismantle the company and deliver our search business to Microsoft on terms that would be disadvantageous to Yahoo! stockholders. We are prepared to let our stockholders, not Microsoft and Carl Icahn, decide what is in their best interests and we look forward to the upcoming vote."

One of the analysts, who refused to give out name suggested that Microsoft should rather reorganise itself, joining hands with Carl only shows that the company has run out of innovative ideas and strength and is now adopting any measures to stay in the fight.

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