Microsoft Writes Yahoo: BoomTown Decodes the Letter, So You Don't Have To!
As a continuing public service, BoomTown translates the letter that Microsoft CEO Steve Ballmer sent to Yahoo’s Board of Directors last week, informing them of the software giant’s unsolicited offer to buy the troubled Internet portal for $31 a share.
Steve wrote: January 31, 2008
Board of Directors
701 First Avenue
Sunnyvale, CA 94089
Attention: Roy Bostock, Chairman
Attention: Jerry Yang, Chief Executive Officer
Dear Members of the Board:
Translation: [With Steve channeling Alex Forrest in "Fatal Attraction"] Well, what am I supposed to do? You won’t answer my calls, you change your number. I mean, I’m not gonna be ignored, Jerry!
Steve wrote: I am writing on behalf of the Board of Directors of Microsoft to make a proposal for a business combination of Microsoft and Yahoo! Under our proposal, Microsoft would acquire all of the outstanding shares of Yahoo! common stock for per-share consideration of $31 based on Microsoft’s closing share price on January 31, 2008, payable in the form of $31 in cash or 0.9509 of a share of Microsoft common stock. Microsoft would provide each Yahoo! shareholder with the ability to choose whether to receive the consideration in cash or Microsoft common stock, subject to pro-ration so that in the aggregate one-half of the Yahoo! common shares will be exchanged for shares of Microsoft common stock and one-half of the Yahoo! common shares will be converted into the right to receive cash. Our proposal is not subject to any financing condition.
Translation: First, we’re patient, waiting out that goofy 100-day plan, those sacred cows, all that noise about revival, until you turned in yet another depressing quarter and your stock dropped below $20 a share.
Second, we’re cheap, because that makes $31 seems like Christmas in July for beaten-down Yahoo shareholders, even though–let’s be honest–it’s kind of like stealing candy from a baby.
Third, no financing conditions! In other words, we’re rich! Rich! And did we mention? RICH!
Steve wrote: Our proposal represents a 62% premium above the closing price of Yahoo! common stock of $19.18 on January 31, 2008. The implied premium for the operating assets of the company clearly is considerably greater when adjusted for the minority, noncontrolled assets and cash. By whatever financial measure you use–EBITDA, free cash flow, operating cash flow, net income or analyst target prices–this proposal represents a compelling value realization event for your shareholders.
Translation: Once again, with feeling! You=losers. Us=rich!
Steve wrote: We believe that Microsoft common stock represents a very attractive investment opportunity for Yahoo!’s shareholders. Microsoft has generated revenue growth of 15%, earnings growth of 26% and a return on equity of 35% on average for the last three years. Microsoft’s share price has generated shareholder returns of 8% during the last one-year period and 28% during the last three-year period, significantly outperforming the S&P 500. It is our view that Microsoft has significant potential upside, given the continued solid growth in our core businesses, the recent launch of Windows Vista and other strategic initiatives.
Translation: OK, that’s good if you’re an old-media company! Or some crappy industrial dinosaur. But, in Internet terms, of course, 8% is pretty much what Google gets when it sneezes and calls it a new business selling ads on Kleenex.
Steve wrote: Microsoft’s consistent belief has been that the combination of Microsoft and Yahoo! clearly represents the best way to deliver maximum value to our respective shareholders, as well as create a more efficient and competitive company that would provide greater value and service to our customers. In late 2006 and early 2007, we jointly explored a broad range of ways in which our two companies might work together. These discussions were based on a vision that the online businesses of Microsoft and Yahoo! should be aligned in some way to create a more effective competitor in the online marketplace. We discussed a number of alternatives ranging from commercial partnerships to a merger proposal, which you rejected. While a commercial partnership may have made sense at one time, Microsoft believes that the only alternative now is the combination of Microsoft and Yahoo! that we are proposing.
Translation: Look, you can’t beat Google. We can’t beat Google. We decided that by partnering, we can’t beat Google. So by force-merging together two companies that can’t beat Google, we’ll beat Google! (By the way, this is the kind of logical thinking that led to the brown Zune!)
Steve wrote: In February 2007, I received a letter from your chairman indicating the view of the Yahoo! Board that “now is not the right time from the perspective of our shareholders to enter into discussions regarding an acquisition transaction.” According to that letter, the principal reason for this view was the Yahoo! Board’s confidence in the “potential upside” if management successfully executed on a reformulated strategy based on certain operational initiatives, such as Project Panama, and a significant organizational realignment. A year has gone by, and the competitive situation has not improved.
Translation: I will not be ignored by you either, Terry!
Steve writes: While online advertising growth continues, there are significant benefits of scale in advertising platform economics, in capital costs for search index build-out, and in research and development, making this a time of industry consolidation and convergence. Today, the market is increasingly dominated by one player who is consolidating its dominance through acquisition.
Translation: By consistently refusing to say Google’s name out loud, as if this is not our primary motivation, we hope the press won’t realize this is the most expensive temper tantrum in history.
Steve wrote: Together, Microsoft and Yahoo! can offer a credible alternative for consumers, advertisers and publishers.
Translation: By credible, we mean we imagine another ridiculously gigantic behemoth, with Microsoft in charge, looks like David versus those fruity-colored Goliaths of Google. Well, it does if you squint really hard when you look at it.
Steve wrote: Synergies of this combination fall into four areas:
- Scale economics: This combination enables synergies related to scale economics of the advertising platform where today there is only one competitor at scale. This includes synergies across both search and non-search related advertising that will strengthen the value proposition to both advertisers and publishers. Additionally, the combination allows us to consolidate capital spending.
- Expanded R&D capacity: The combined talent of our engineering resources can be focused on R&D priorities such as a single search index and single advertising platform. Together we can unleash new levels of innovation, delivering enhanced user experiences, breakthroughs in search and new advertising platform capabilities.
Many of these breakthroughs are a function of an engineering scale that today neither of our companies has on its own.
- Operational efficiencies: Eliminating redundant infrastructure and duplicative operating costs will improve the financial performance of the combined entity.
- Emerging user experiences: Our combined ability to focus engineering resources that drive innovation in emerging scenarios such as video, mobile services, online commerce, social media and social platforms is greatly enhanced.
Translation: Scale, schmale, Google is kicking both our butts, so let’s join forces to see if that works. Plus, then we can lay off a lot of people and save some money. Of course, all the really good engineers will probably be scooped up by Google, and then we’re back to square one.
Steve wrote: We would value the opportunity to further discuss with you how to optimize the integration of our respective businesses to create a leading global technology company with exceptional display and search advertising capabilities. You should also be aware that we intend to offer significant retention packages to your engineers, key leaders and employees across all disciplines.
Translation: [Again, in an Alex Forrest voice] You play fair with me, I’ll play fair with you.
Steve wrote: We have dedicated considerable time and resources to an analysis of a potential transaction and are confident that the combination will receive all necessary regulatory approvals. We look forward to discussing this with you, and both our internal legal team and outside counsel are available to meet with your counsel at their earliest convenience.
Translation: Let’s review the key issues! We. Will. Not. Be. Ignored.
Steve wrote: Our proposal is subject to the negotiation of a definitive merger agreement and our having the opportunity to conduct certain limited and confirmatory due diligence. In addition, because a portion of the aggregate merger consideration would consist of Microsoft common stock, we would provide Yahoo! the opportunity to conduct appropriate limited due diligence with respect to Microsoft. We are prepared to deliver a draft merger agreement to you and begin discussions immediately.
Translation: Just try and get another bid from those gun-shy Time Warner wimps or that not-that-crazy Rupert Murdoch and we’ll be launching the warheads on them. And if you so much as glance in Eric Schmidt’s direction–well, we can’t be responsible for our actions.
Steve wrote: In light of the significance of this proposal to your shareholders and ours, as well as the potential for selective disclosures, our intention is to publicly release the text of this letter tomorrow morning.
Translation: I love the smell of napalm in the morning!
Steve wrote: Due to the importance of these discussions and the value represented by our proposal, we expect the Yahoo! Board to engage in a full review of our proposal.
My leadership team and I would be happy to make ourselves available to meet with you and your Board at your earliest convenience. Depending on the nature of your response, 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.
Translation: Let’s not call it an offer you can’t refuse, which sounds so thuggish. Let’s call it an offer the refusal of which you can’t.
Steve wrote: We believe this proposal represents a unique opportunity to create significant value for Yahoo!’s shareholders and employees, and the combined company will be better positioned to provide an enhanced value proposition to users and advertisers. We hope that you and your Board share our enthusiasm, and we look forward to a prompt and favorable reply.
Translation: By unique opportunity, we mean rock and a hard place. By enthusiasm, we mean try not to look ill. By prompt and favorable, we mean we think sacred cows are very tasty when boiled!
Steve wrote: Sincerely yours,
Steven A. Ballmer
Steven A. Ballmer
Chief Executive Officer
Translation: Tony “Monkey Boy” Soprano
And, as a special added bonus, here’s BoomTown’s decoding of Yahoo’s response to the Microsoft offer:
Yahoo wrote: Yahoo! Board of Directors to Evaluate Unsolicited Proposal From Microsoft
SUNNYVALE, Calif.–February 01, 2008–Yahoo! Inc. (Nasdaq:YHOO), a leading global Internet company, today said that it has received an unsolicited proposal from Microsoft to acquire the company. The company said that its Board of Directors will evaluate this proposal carefully and promptly in the context of Yahoo!’s strategic plans and pursue the best course of action to maximize long-term value for shareholders.
Translation: Omigod. Omigod. Omigod. We’re cooked! But do you think Microsoft will let us keep the exclamation point?
Please see this disclosure related to me and Google.