Yahoo! Turns Down New Microsoft Deal (Search Acquisition, New Board)

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“This odd and opportunistic alliance of Microsoft and Carl Icahn has anything but the interests of Yahoo’s stockholders in mind.” “It is ludicrous to think that our Board could accept such a proposal,” stated Yahoo! Chairman Roy Bostock. “While this type of erratic and unpredictable behavior is consistent with what we have come to expect from Microsoft, we will not be bludgeoned into a transaction that is not in the best interests of our stockholders.”

On Friday night, Microsoft Corporation (NASDAQ:MSFT) and Carl Icahn proposed a deal to Yahoo! Inc. (NASDAQ:YHOO) and wanted an answer back within 24 hours.  Yahoo! said no.  What was the deal?  The deal was that Microsoft would buy Yahoo!’s search business and then allow Icahn to choose his own board of directors for the rest of the company.

Yahoo! worked with financial advisers and a legal team to decide whether the deal was feasible or not.  The Microsoft offer just wasn’t sweet enough.  The reasons why Yahoo! turned down Microsoft again was because:

* Yahoo!’s deal with Google Inc. (NASDAQ:GOOG) was superior in financial value and less riskier.
* If Microsoft/Icahn took over Yahoo!, the search engine company would not be able to be sold for a full & fair price.
* The new slate of directors Icahn selected has no working knowledge dealing with Yahoo!’s businesses.
* Removing all of Yahoo!’s board would destabilize the company for at least the amount of time that it would take to gain regulatory approval for the deal to go through.

Yahoo! did admit that this new deal has improvements over the past offerings, but it still would not be in the interest of shareholders.  The reason is that the revenue guarantees suggested in the Microsoft deal are below the search revenue that Yahoo! is expecting to make with it’s Google deal.  Yahoo!’s success would be extremely dependent on Microsoft’s ability to monetize search.  And another reason why Microsoft’s deal isn’t worth it is because they are not considering the incremental value of Yahoo!’s search algorithms and intellectual property.

The usual timeline is available after the jump.

June 2007: Former Yahoo! CEO, Terry Semel Resigns, Jerry Yang steps up.
July 2007: Yang makes a 100 day plan to get Yahoo! off the ground again.
February 1, 2008: Microsoft makes an unsolicited offer to Yahoo! for $44.6 billion.
February 9, 2008: Yahoo! passes on Microsoft offer.
February 11, 2008: Rumor is that Yahoo! may merge with AOL.
February 12, 2008: Microsoft CEO, Steve Ballmer sends a letter to Yahoo! that Microsoft reserves the right to pursue all necessary steps to ensure that Yahoo!’s shareholders are provided with the opportunity to realize the value inherent in our proposal.
February 13, 2008: Layoff notices are given at Yahoo! Ryan Kuder Twitters the entire event.
April 4, 2008: Rumors begin to appear that Microsoft is deciding to pull the offer.
April 5, 2008: Microsoft sends a letter to Yahoo! stating that they may work out a separate deal with shareholders if a decision isn’t made.
April 7, 2008: Yahoo! Announces their AMP! advertising platform and stated that they want more money from Microsoft.
April 9, 2008: Yahoo! states that they may be interested in an ad outsourcing deal with Google.
April 10, 2008: Rumors appear that News Corp. AOL, and Google all want to arrange deals with Yahoo!
April 12, 2008: Capital Research & Management invests $2 billion more in Yahoo! shares giving them ownership of $6 billion worth of the company.
April 30, 2008: Rumor appears Microsoft increases the amount that they’re willing to spend.
May 4, 2008: Microsoft walks away from the negotiation table after Yahoo! demands too much of a high price for Microsoft.
May 4, 2008: Yahoo! responds by saying that through this experience, Yahoo! emerged as a stronger, more focused company.
May 7, 2008: Yahoo! & Google become more serious about Google Ads appearing on Yahoo!
May 14, 2008: Major Yahoo! shareholder, Carl Icahn steps in and calls the Yahoo! Board irrational.
May 20, 2008: Microsoft makes an offer to buy Yahoo!’s Search Advertising Business for an undisclosed amount.
May 23, 2008: Yahoo! Director, Edward Kozel resigns to spend more time with family.
May 23, 2008: Yahoo! postpones shareholder meeting for the second time.
May 28, 2008: Jerry Yang claims company isn’t under siege and Microsoft is no longer interested in buying out the whole company at All Things D conference.
May 30, 2008: FTC officially approves Icahn’s large purchases of Yahoo! stock.
June 2, 2008: Yahoo! court documents state that Yahoo! was planning to turn down a deal with Google one day before the Microsoft bid.
June 3, 2008: Carl Icahn indicates if proxy battle is successful, he’d want Jerry Yang out of CEO position.
June 4, 2008: Yahoo! Board decides annual shareholder meeting date to be held on August 1.
Icahn sends Yahoo! a letter explaining that he believes Yahoo! CEO, Jerry Yang sabotaged the Microsoft bid. Roy Bostock responds to Icahn by saying that Microsoft is no longer interested in a full acquisition.
June 6, 2008: Carl Icahn sends a letter to Roy Bostock with a 5 point plan detailing what a new board would do for Yahoo!  Yahoo! sends back a quick response to Icahn saying that his letter is “ill-advised.”
July 2, 2008: Reports indicate Microsoft is still interested in a new deal with Yahoo!
July 7, 2008: Carl Icahn writes a letter to Yahoo! shareholders indicating that Microsoft is still interested in a full acquisition assuming that a new board is elected at Yahoo!
July 11, 2008: Microsoft gives Yahoo! 24 hours to decide on a new deal: Microsoft would buy Yahoo!’s search business and then allow Icahn to choose his own board of directors for the rest of the company.
July 12, 2008: Yahoo! says no again.

This article was written by Amit Chowdhry. You can follow me at @amitchowdhry or on Google+ at
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