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SAN FRANCISCO—Microsoft
Corp. on Saturday yanked a $42-billion takeover offer
for Yahoo Inc. that would have reordered the landscape
of the Web after the companies failed to agree how much
the Internet pioneer was worth.
The
breakdown, which came shortly after their chief
executives met in Seattle, marked a dramatic reversal of
mood from just a day earlier. The companies had finally
engaged in talks about the three-month-old offer and,
after Microsoft sweetened its offer by billions of
dollars, appeared closer than ever to combining two
giants of online services and advertising.
“We
believe the economics demanded by Yahoo do not make
sense for us, and it is in the best interests of
Microsoft stockholders, employees and other stakeholders
to withdraw our proposal,” chief executive Steve Ballmer
said in a statement.
The
software behemoth’s executives said they remained
determined to make the company a major force in Web
advertising through internal development and other
alliances or acquisitions.
Microsoft, which makes the Windows operating system and
Office productivity program, has pursued Yahoo for more
than a year as its costly efforts to catch up to Google
Inc. in the booming market for Web advertising have
withered.
But
despite a widening gap in that race between Google and
perennial runner-up Yahoo, Yahoo’s founders said they
wanted to soldier on as an independent company.
Yahoo
does plan to seek help. The company plans to pursue an
advertising partnership with Google, according to people
familiar with the talks. Although antitrust regulators
expressed concerns, Yahoo and Google were buoyed by the
results of a two-week test in which Google placed its
search-related ads, which are the industry’s most
profitable, alongside some of Yahoo’s Web search
results.
Google
could not be reach for comment.
In a
statement issued Saturday night, Yahoo showed no regret
about not joining Microsoft.
“This
process has underscored our unique and valuable
strategic position,” said Jerry Yang, Yahoo’s CEO and
co-founder. “With the distraction of Microsoft’s
unsolicited proposal now behind us, we will be able to
focus all of our energies on executing the most
important transition in our history.”
The
withdrawal did not end all possibility that the two
companies could unite. Analysts said Microsoft might be
hoping that Yahoo’s stock tanks enough that its
management team comes back to the bargaining table
willing to sell for less.
Most
analysts predicted a sharp drop in Yahoo’s share price,
which had risen 7 percent to $28.67 Friday in
expectation of a Microsoft deal, as well as a flurry of
shareholder lawsuits accusing management of not looking
out for investors’ best interests.
“Clearly
the stock will drop meaningfully on Monday, because as a
stand-alone company it continues to struggle to grow
profits and market share,” Stanford Group analyst
Clayton Moran said. “This deal was a very attractive
offer.”
Microsoft’s team said its reasons for walking away
included differences over strategy and culture. But it
was clear that the final straw was a dispute over
Yahoo’s worth that amounted to billions of dollars.
Ballmer
said Saturday that the company had raised its buyout
price to $33 a share from the initial $31 offered, which
added $5 billion to the price. The cash-and stock deal
was initially worth $44.6 billion when announced
February 1, but its value has fallen to $42 billion as
Microsoft’s share price dropped.
A
$33-a-share offer would have represented a more than
70-percent premium over Yahoo’s closing stock price on
the night that Microsoft made its unsolicited offer.
But
Yahoo had insisted on receiving at least $5 billion more
than that, or at least $37 a share, which Microsoft was
unwilling to pay, Ballmer wrote in a letter to Yang.
“This
was Jerry and David not being realistic about the
company they founded,” said a person familiar with
Microsoft’s thinking, referring to Yang and his Yahoo
co-founder, David Filo. “Yahoo’s business continues to
deteriorate, which is why ‘fast’ was so important. There
was no ‘fast.’”
Ballmer
said he had decided against launching a hostile bid for
Yahoo by nominating a slate for the company’s board of
directors. He said Yahoo had signaled that it would take
action that could prolong such a proxy fight and make
the company less valuable to Microsoft, including
striking the Google partnership.
People
close to Yahoo, speaking on condition of anonymity
because they were not authorized to discuss the
negotiations, said the company’s leaders had worried
about other issues in addition to price. They said
Microsoft had never described a clear plan for beating
Google, nor would it discuss how to tackle antitrust
concerns raised by combining two major providers of such
Web services as e-mail and instant messaging. |
