Kara Swisher

Recent Posts by Kara Swisher

MicroHoo: The Odd Couple Meetings Led Nowhere

oddcouple

After today’s events, I guess you could say Yahoo (YHOO) and Microsoft (MSFT) tried, holding a series of meetings about a possible takeover that ended up proving exactly how incompatible the companies were.

Kind of like Oscar Madison and Felix Unger, but not funny in any way at all.

Consider a series of meetings, according to sources close to both companies, that took place over the last several weeks, which finally came after Microsoft CEO Steve Ballmer lobbed the Saturday stink-bomb letter to Yahoo in early April, saying he planned to go hostile.

That apparently prompted some movement out of Yahoo, which had been trying to avoid any kind of substantive discussions with Microsoft until then and had been spending its time looking for all sorts of semi-wacky alternatives.

Thus, according to sources close to Microsoft, a meeting on April 15 in Portland, Ore. (a state in which BoomTown said meetings were likely to take place last week).

At that meeting, Yahoo execs laid out the same case they had been doing for investors, a road-show presentation of the company’s growth plans to underscore its case for a higher valuation.

At the same time, Yahoo would not give a specific valuation for the company at that meeting, said sources.

But on a call with bankers and advisers from both sides on April 18, a big number was put forward by Yahoo of at least $40 a share. This was, of course, a nonstarter for Microsoft, which began plans for its hostile proxy fight.

As the deadline loomed on April 29, Yahoo sources said execs there wanted to avoid such a battle.

So Yang and Yahoo Chairman Roy Bostock held phone calls with Ballmer two times that day to suggest ways to avoid a hostile bid and also a walk-away move by Microsoft.

They also suggested, said Microsoft sources, other kinds of deals short of a merger, including a search partnership. Ballmer suggested a face-to-face meeting the next day, on April 30.

At that meeting, which took place in Silicon Valley at Yahoo’s law firm, Yang suggested $38. He also continued to press on major issues like possibly problematic regulatory issues around the pair’s email domination and also suggested the idea of a search deal, like the one Yahoo had been discussing with Google (GOOG).

Finally, as a last-ditch effort, Yang and David Filo–who founded Yahoo with Yang while the pair were at Stanford University as grad students–flew to Microsoft’s home in the Seattle area today to meet at the airport with Ballmer and also Kevin Johnson, the main Microsoft exec who had been spearheading the deal.

It was, of course, the kind of meeting–just the key execs alone–that should have taken place months ago.

Ballmer suggested $33 and a plan to assuage Yahoo’s regulatory worries, while Yang countered with $37, a price the board had approved, even though both Filo and Yang wanted the higher prices.

Worst of all, Yang told Ballmer that, if Microsoft chose to conduct a proxy fight, he would not abandon pursuing the deal with Google to outsource Yahoo’s online ad business, which Yahoo could sign even if Microsoft made a hostile bid.

catsanddogs

Such a deal with its archrival, Microsoft execs thought, was impossible to accept and could also be hard to unwind.

“There was not a lot more to say after that,” said a source close to Microsoft.

Yang and Filo left the meeting, but the die was cast. While they expected a counter, Ballmer instead lowered the boom in a phone call and sent a letter saying so in detail soon after.

Another Yahoo source who was told the details of the meeting agreed that even today’s meeting was probably a lost cause.

“There has never been a moment when there was agreement on anything,” said the source. “Can you just imagine how a merger would have been with this as a prelude?”

Indeed. Cats and dogs. AOL and Time Warner (TWX). Oil and Water. Obama and Hillary. You get the picture.


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