Microsoft delivered an ultimatum to Yahoo over the weekend. Tired of waiting while Yahoo delays what most observers believe is inevitable, Microsoft CEO Steve Ballmer issued a 21 day deadline to Yahoo’s Board of Directors informing them that if they don’t accept an offer for their company within three weeks, they will face full-fledged hostility from his.
The deadline warning comes in the form of a 6 paragraph letter to Yahoo’s board. In it, Ballmer notes the dramatic lengths Yahoo has gone to trying to stave off an acquisition by Microsoft. It also correctly notes that none of Yahoo’s efforts have been remotely successful and that a saviour/suitor is not likely to materialize.
“While there has been some limited interaction between management of our two companies, there has been no meaningful negotiation to conclude an agreement. We understand that you have been meeting to consider and assess your alternatives, including alternative transactions with others in the industry, but we’ve seen no indication that you have authorized Yahoo management to negotiate with Microsoft. This is despite the fact that our proposal is the only alternative put forward that offers your shareholders full and fair value for their shares, gives every shareholder a vote on the future of the company, and enhances choice for content creators, advertisers, and consumers.”
Since Microsoft made its unsolicited acquisition offer on January 31, 2008, Yahoo has announced or undertaken several new initiatives that, according to Ballmer, will make the merging of the companies more expensive. Not only that, the markets have turned sour, making the costs of buying Yahoo almost as challenging to Microsoft as the costs of keeping Yahoo afloat are to its Board of Directors.
“During these two months of inactivity, the Internet has continued to march on, while the public equity markets and overall economic conditions have weakened considerably, both in general and for other Internet-focused companies in particular. At the same time, public indicators suggest that Yahoo’s search and page view shares have declined. Finally, you have adopted new plans at the company that have made any change of control more costly.”
As the markets go, so goes the value offered to Yahoo shareholders in the original $41Billion bid. With the bulk of the financial sector battling chaos, investors have every right to worry, fret and rebel. Ballmer knows this and uses shareholder discontent as a backhanded motivator.
“By any fair measure, the large premium we offered in January is even more significant today. We believe that the majority of your shareholders share this assessment, even after reviewing your public disclosures relating to your future prospects.”
Though Ballmer is clearly tired of waiting and worried about the accelerating costs of financing, his letter to the Yahoo Board retains a thin veneer of politeness. Behind the polite tone however rests a threat that could be measured in the billions of dollars.
“If we have not concluded an agreement within the next three weeks, we will be compelled to take our case directly to your shareholders, including the initiation of a proxy contest to elect an alternative slate of directors for the Yahoo board. The substantial premium reflected in our initial proposal anticipated a friendly transaction with you. If we are forced to take an offer directly to your shareholders, that action will have an undesirable impact on the value of your company from our perspective which will be reflected in the terms of our proposal.”
Barring a drastic change of heart from the Yahoo Board of Directors, Microsoft is going to take some decidedly hostile action by appointing its own slate of potential directors at Yahoo’s next Annual General Meeting, scheduled for early June. An already ugly saga is about to get uglier, as Ballmer suggests in his sign-off,
“It is unfortunate that by choosing not to enter into substantive negotiations with us, you have failed to give due consideration to a transaction that has tremendous benefits for Yahoo’s shareholders and employees. We think it is critically important not to let this window of opportunity pass.”
21-days…
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