Tuesday, July 15, 2008

Microsoft-Yahoo Search!

We have been hearing issues related with Microsoft bidding for Yahoo countless times in the news. At this moment, we are hearing twice attempts of Microsoft in ensuring the deal for 2nd biggest online search after Google. In this posting, I would like to invite some of the information, I have found viewed interesting about both Microsoft after Bill Gates and Yahoo with the shaken Jerry Yang.

An attempt of Carl Icahn, a name came into limelight of launching a proxy fight with the Yahoo Shareholders. Icahn, 72 ranked 53 in the Forbes list during 2006 make an effort with Microsoft Steve Ballmer to ensure the Yahoo Search engine were guaranteed within their hands. In addition, this battle will be kick - start in ability to remove top management of Yahoo including Jerry Yang as CEO.

On 14th July recently, Icahn delivered a proposal to Yahoo shareholders, he mentioned he has yet to see a company distort, omit, twist events as Yahoo did during the press conference on 12th July. Icahn explicitly explained the details of the open letter to Yahoo Share holders and the board such with below.

During the last week, Goldman Sachs called him a number of times asking him to relate to them any transaction that Microsoft might be interested in transacting with Yahoo! He discussed with them the possibility of doing a “Search only” deal wherein Microsoft would purchase “Search” from Yahoo! and pay Yahoo! for any searches that would originate from a Yahoo! content page.

Yahoo! felt that a deal of this nature would be very interesting, but only if Microsoft would guarantee the revenue that Yahoo! now received. This would obviously be a great deal for Yahoo! because Yahoo! would, for five years, receive a minimum of the $2.3 billion they are currently receiving as long as they continued to supply the page views and affiliate traffic they now had.

Heretofore, Microsoft had been unwilling to even come close to making this guarantee. However, after he negotiated with Steve Ballmer for the better part of a week, he agreed to the guarantee. Ballmer also agreed to commit $7.7 billion dollars to the transaction (consisting of a $1 billion payment for “Search”, a $2.8 billion loan and a $3.9 billion tender offer to Yahoo! shareholders).

Under the transaction, Yahoo! shareholders would receive $16.25 per share in distributions (consisting of cash and securities) and be left with a content company which would have a minimum guarantee of $2.3 billion per year of “Search” revenue from Microsoft and cost saving synergies from exiting the “Search” business that Yahoo! has publicly stated would be $750 million per year (excluding the benefits from reduction of stock compensation and other non-cash items).

However, Microsoft believes the synergies from Yahoo! exiting “Search” would be far superior and that Yahoo!’s 2009 GAAP operating income would exceed $2 billion. Microsoft would be making a substantial equity investment in the remaining company at a valuation of $19.50 per share. Furthermore, Yahoo! would be spared the great expense of maintaining “Search” as well as having to spend billions in developing new technology to compete with Google and Microsoft, which it is highly doubtful they would be able to do successfully. Additionally, Yahoo! would be able to avoid the great risk of seeing “Search” continue to lose market share and eventually melt away.

He spoke to Goldman Sachs and Roy Bostock on Thursday concerning the breakthrough with Microsoft. A call to discuss the details of the transaction was then set up among Microsoft, Yahoo! and me on Friday afternoon, July 11th. However to his surprise and consternation, on the Friday call Yahoo!, instead of being interested in the Microsoft offer, seemed to me to be focused on who would be running Yahoo!. Finally, Steve Ballmer suggested that they not spend the rest of Friday afternoon on corporate governance. “First tell us if you like the deal,” he said.

Steve Ballmer has made it clear to Icahn that if a new board consisting of Icahn nominees were to be elected, Microsoft would be willing to enter into discussions immediately regarding a transaction along the lines described above. If and when elected, he strongly believes that in very short order the new board would, subject to its fiduciary duties, be approving an offer along these lines for its shareholders.

So much and so much about the details revealed by Carl Icahn. I look forward for more interesting news on such possible merging or buy-over. Would it be someday Microsoft will use Yahoo Search instead of MSN engine they claimed not be able to rival Yahoo whatmore the superior Google? A Microsoft-Yahoo Search.

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