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BREAKING: Microsoft buys Yahoo for $44.6bn
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Fri Feb 01, 2008 5:39 pm Reply and quote this post
Steve Ballmer all but confirmed that Microsoft wanted to buy Yahoo!for scale, branding and audience rather than any technology or productsthe web media co owns.
Ballmer claimed today that Microsoft's bid for Yahoo! would be agreat deal for shareholders on both sides and will let the new companycompete effectively in the online advertising market where, we weretold, scale is king.


In a conference call with analysts and reporters this afternoonMicrosoft's chief executive Steve Ballmer said he'd been "engaged withYahoo! for eighteen months" and that the two companies "share a visionfor online services".
Ballmer said it was a 'transformational' deal which focussed onthree constituencies: consumers, advertisers and publishers. He said hecould see no better way to address the consumer perspective than bybuying Yahoo!.
Ballmer said: "Scale matters for online advertising. Aggregating inventory onto one platform improves yield for publishers."
Ballmer refused to be drawn on what this would mean for averagemargins saying it was a different business - he described Microsoft asalready having four business models for different areas of its business.
Asked if there was a danger of a rival bid emerging, maybe from abig media company, Ballmer repeated his belief that it was a good deal.Then Microsoft's legal counsel Brad Smith piped up with an explanationof how it would be anti-competitive if Google bought Yahoo!.
Microsoft is hoping to close the deal in the second half of 2008,which suggests it doesn't expect too much of a fight from either Yahoo!or competition regulators.
Asked if the scale of the acquisition would mean a hold was put onenterprise software buys, Ballmer answered simply and gruffly: "No!"
Microsoft has offered to buy the search engine company Yahoo for $44.6bn (£22.4bn) in cash and shares.

The offer, contained in a letter to Yahoo's board, is 62% above Yahoo's closing share price on Thursday.

Yahoo cut its revenue forecasts earlier this week andsaid it would have to spend an additional $300m this year trying torevive the company.
It has been struggling in recent years to compete with Google, which has also been a competitor to Microsoft.

In a conference call, Microsoft's Kevin Johnson saidthat the combination of the two companies would create an entity thatcould better compete with Google.


"Today the market [for online search and advertising] is increasingly dominated by one player," he said.
Chairman quit
Yahoo confirmed that it has received an unsolicitedoffer and said that its board would evaluate the proposal, "carefullyand promptly in the context of Yahoo's strategic plans and pursue thebest course of action to maximize long-term value for shareholders."
If Yahoo accepted the offer, competition authoritiesboth in the US and the European Union would be likely to investigatethe tie-up.
Yahoo chief executive, Jerry Yang, announced on Tuesdaythat he intended to lay off 1,000 staff as part of a restructuringplan.
Terry Semel, who stepped down as chief executive last June, also quit as non-executive chairman on Thursday.
Microsoft said that Yahoo shareholders could choose to receive either cash or shares.


Yahoo shares have fallen 46% since reaching a year-high of $34.08 in October. On Friday they closed almost 48% higher.
Microsoft closed 6.6% lower while Google shares fell 8.6%.
"Ultimately this corporate marriage was forced by therise of Google, which has grown into a serious competitor for bothMicrosoft as a software company and Yahoo as an internet portal," saidTim Weber, business editor of the BBC News website.
"It is a shotgun marriage, but the person holding the shotgun is Google."
'Exorbitant premium'
According to its letter to Yahoo, Microsoft attempted toenter talks about a deal a year ago, but was rebuffed because Yahoo wasconfident about the "potential upside" presented by the reorganisationand operational activities that were being put in place at the time.
"A year has gone by, and the competitive situation has not improved," Microsoft's letter said.
But there has been some concern about the price that Microsoft is offering.


"To me, the premium seems exorbitant, for what is a dwindling business," said Tim Smalls from the brokerage firm Execution LLC.
"I personally don't see how the synergies of Microsoft-Yahoo is going to take on Google."
Other analysts were more enthusiastic about the offer.
"It is a fantastic offer. It is game on," said Colin Gillis from Canaccord Adams.
"This consolidates the marketplace down to Google versus Microsoft. These two companies will be going head to head."


Last edited by Editorial Team on Mon Feb 04, 2008 5:02 am; edited 1 time in total

Contributed by Editorial Team, Executive Management Team
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Sat Feb 02, 2008 8:25 am Reply and quote this post
Bill Gates, the world’s richest man, yesterday went to war with Google, themost powerful company on the web, over the future of the internet.
Microsoft, the software empire founded by Mr Gates, launched a $44 billion(£22 billion) assault on the search engine with a hostile bid for Yahoo!,Google’s rival, the largest hostile takeover offer seen on Wall Street.
Mr Gates has watched for several years in which Microsoft’s dominance oftechnology has been superceded by the rise of Google. He made his move after18 months of fruitless behind-the-scenes talks with Yahoo!
At stake is an estimated £40 billion of online advertising by 2010 – doubletoday’s figure – in what is a last-ditch attempt by Mr Gates to stopGoogle’s runaway success.
The move underlies Mr Gates’s determination to succeed after repeatedovertures to Yahoo! were rebuffed.
Steve Ballmer, chief executive of Microsoft, said: “A year ago the Yahoo!management team told us it wasn’t really the right time to discuss anacquisition. We believed then in the benefits of combining the two companiesand we believe now in those benefits more than ever.”
Google-owned sites last year became the most visited on the internet, with 587million people logging in during December. Microsoft, ahead a year ago, wasvisited by 540 million unique users and Yahoo!, in third place globally, by485 million.
Internet advertising is soaring: Microsoft said it would double from $40billion now to be worth $80 billion in 2010.
Although Mr Gates’s company has long dominated the supply of software forpersonal computers, it has been unable to translate that into commercialsuccess on the internet. Microsoft admitted yesterday that its own searchengine and sites lose money, while Google is adept at commercialisation andis now valued at $162 billion.
Yahoo! is reluctant to fall victim. The company is run by Jerry Yang, 39, oneof its two founders, whose own shares were yesterday worth $1.6 billionafter Mr Gates’s move.
Mr Yang took control of the business last year amid a prolonged crisis inwhich profits tumbled.
The Californian culture of Yahoo! is radically different to the Seattle-basedMicrosoft, which is known for its disciplined approach to softwaredevelopment. However, Yahoo! has failed to expand as quickly as Google, andthis week was forced to make 1,000 employees redundant.
Mr Gates’s target first learnt of the hostile approach in a phone call onThursday night to Mr Yang. Yesterday Yahoo! hired Goldman Sachs – a bankthat previously advised Microsoft – and Lehman Brothers. Publicly it keptits options open, saying it would “evaluate this proposal carefully andpromptly.”
Yahoo! shares soared 46 per cent but at $28.12 remained below Microsoft’soffer, worth $28.99 last night.

Opinion?
Ultimately money cannot beat innovation. Google has been innovating,and extremely quickly, in the way they approach softwares. Arguablythey are copying Microsoft's softwares, but ironically, they seem to bedoing better job at making them than Microsoft is. What MS has is moneyand market share. What Google has is user friendliness and expertise.Both are equally cunning. It would be interesting to see what'll happenafter MS really takes over Yahoo. What assets can Yahoo offer MS thatMS cannot build? Loyal users? Somehow I believe that by acquiringYahoo, MS wil have plans to dissolve the brand and integrate it intotheir own brands, which would turn users away.

Contributed by Editorial Team, Executive Management Team
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Sat Feb 02, 2008 8:27 am Reply and quote this post
New York Times:
Bill Gates, the chairman of Microsoft and a global philanthropist, called upon fellow business leaders at the World Economic Forum last week to pursue a kinder form of capitalism.
Quote:

But on Friday, the brand of capitalism practiced by his company’s chief executive, Steven A. Ballmer, came with a decidedly hard edge.
Microsoft’s $44.6 billion bid for Yahoo,pushed by Mr. Ballmer, was hostile. And during a conference call Fridaywith analysts and in a subsequent interview, he never once uttered theword “Google,” referring to the Internet search giant that has humbled Microsoft only as “the leader” in the online world.
Mr.Ballmer, 51, is a famously fierce competitor. To him, failure is neveran option. “If we don’t get it right at first, we’ll just keep comingand coming and coming and coming,” he said in an earlier interview.
Microsoft’sbid for Yahoo is thus a tacit, and difficult, admission that thecompany did not get its online business right. The bid also representsa sharp departure from Microsoft’s well-thumbed playbook of buildingnew businesses on its own. In the past, when Microsoft moved beyond itsstronghold in desktop computer software — and into areas like videogames and data-center software — it has done so mainly with in-houseinvestment, patience and tenacity.
Microsoft stuck to thatformula for years with its Internet search and advertising — withoutsuccess. It did buy an online ad agency, aQuantive, last May for $6 billion, a sizable move given Microsoft’s tradition of making small, niche-filling acquisitions.
The losses, however, continue to mount in Microsoft’s online business, while Google makes billions in profit.
TheGoogle challenge to Microsoft extends beyond online search andadvertising. Google is at the forefront of companies offering softwareas online services, including Web-based alternatives to Microsoft’slucrative desktop products like word processing, spreadsheets andpresentation programs.
Mr. Gates, Microsoft’s largestshareholder, has said that Google is the company that most reminds himof Microsoft in terms of its broad ambitions and demanding corporateculture. Mr. Gates, who is spending more time on philanthropy thesedays, blessed the Yahoo bid, but it is Mr. Ballmer’s brainchild.
AndMr. Ballmer clearly views the Yahoo bid, and the Google threat, inbroad terms. A Yahoo deal, he said, would represent “the next majormilestone in Microsoft’s transformation.”
Microsoft, too, ismoving to offer more software features as Web-based services, though itsees a future that revolves around both personal computer software andonline services.
Microsoft has been forced to adopt a newstrategy for a different kind of threat than it has confronted, andusually dispatched, in the past.
“This shows just how worriedMicrosoft is by Google,” said David B. Yoffie, a professor at theHarvard Business School. “Microsoft has faced competitive threatsbefore, but none with the size, strength, profitability and momentum ofGoogle.”
In the conference call, Mr. Ballmer conceded thatMicrosoft needed a big move to try to catch up in the online business.“The market continues to grow, and the leader continues to consolidateposition,” he said.
Microsoft, analysts say, finds itself in abattle where improving its search algorithms and online ad software isnot going to be enough. Google has impressive technology, to be sure,but it also enjoys the torrid growth that falls to the leader in highlynetworked businesses like Internet search and ads.
Google’s edgein search traffic then attracts more advertisers and Web publishers, sothere are more ads in Google’s auctions, which makes them moreefficient. Each advantage reinforces the other, in what economists call“network effects.”
One measure of the network advantage,analysts estimate, is that Google collects 40 percent to 100 percentmore revenue per search than either Yahoo or Microsoft.
Microsoft,of course, is no stranger to the power of network effects. It was themaster of that strategy in the personal computer era. Its early lead inPC operating systems, and its efforts to encourage independent softwaredevelopers to write applications for Windows, paved the way forMicrosoft’s dominance.
More programs ran on Windows than on any other operating system, so more users bought PCs running Windows. Apple, by contrast, never built up the developer network as Microsoft did.
In the Internet era, network effects are working against Microsoft as it battles Google.
Withthe Yahoo bid, analysts say, Microsoft is trying to buy a big enoughshare of the market to be a credible alternative to Google with onlineadvertisers.
In the most recent quarter, Microsoft had onlinerevenue of $863 million, compared with $4.8 billion at Google. Yahooand Microsoft together had more than $2.6 billion in revenue, stilltrailing well behind Google but in a far stronger competitive position.
Butthe trends in online advertising are working to Google’s advantage asit continues to gain share. The more Google’s momentum accelerates, themore difficult it will be for Microsoft to catch up, no matter how muchit might improve its search technology.
While $44.6 billion is ahefty price tag, many analysts say it will be worth it if Microsoft canclose the gap with Google. On Wall Street, Microsoft suffers from theperception that it is several steps behind in the march toward theInternet future.
Microsoft, analysts note, has grown solidlyfor years, but investors give it little credit. Its stock price haslong been stagnant, despite the company’s extremely profitablebusinesses. The Office division alone had quarterly revenue of $4.8billion — equal to Google — and an astronomical $3.2 billion inoperating profits. The Windows unit is even more profitable.
“Microsoftneeds to show that it is going to make the online business work, andthis is about shaking things up that needed shaking up,” said Charlesdi Bona, an analyst for Sanford C. Bernstein & Company.
Askedwhether the move amounted to an admission of failure of the company’searlier strategy, Mr. Ballmer replied that some people might take thatview.
“But I made the judgment that for the long-term health ofthis company, and for the long-term interests of our shareholders, thatacquiring Yahoo is a good thing,” he said.

Contributed by Editorial Team, Executive Management Team
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Mon Feb 04, 2008 4:52 am Reply and quote this post
Video:
From the financial times

Google’s runaway success in the search-engine business threatened to spark an upheaval in the online media world, as it emerged that Microsoft has made a tentative takeover approach to internet giant Yahoo.

FT wrote:
People familiar with the situation said that the talks between the two – the latest in a series of on-again, off-again discussions in the past year – were preliminary and could lead to an alliance or other forms of cooperation. By late on Friday, one person familiar with the talks said an outright acquisition had become “unlikely”.


[QUOTE]The talks have been prompted by an acceleration in the shift of audience and advertisers online, and Microsoft’s failure to build effective search engine and online advertising arms of its own, say analysts and industry executives.

News of the bid approach capped a week of upheaval in the media industry, as both new and old media companies tried to catch up with the shift towards digital forms of consumption. Reuters on Friday said it had received a bid approach, known to be from Canadian publisher Thomson, while Rupert Murdoch’s News Corp rocked the newspaper world this week with its unsolicited bid for Dow Jones, whose assets include the internet’s biggest paid subscription site and one of Reuters’ main newswire competitors.

Yahoo’s shares closed up nearly 10 per cent, valuing the company at $42bn. However, the shares are still about 25 per cent below their level at the start of last year. Microsoft’s shares fell 1.3 per cent.

With one of the biggest audiences on the internet, Yahoo would make a prize catch for any company looking to extend its online reach, said Imran Khan, internet analyst at JPMorgan.

For Steve Ballmer, Microsoft’s chief executive, who is estimated to have spent hundreds of millions of dollars in the past three years to try to build both a search engine and an online advertising network capable of keeping pace with Google, the deal would also mark an aggressive new front. This battle has become more intense following Google’s $3.1bn agreement to buy DoubleClick, which would launch it into the online display advertising business. But combining Microsoft and Yahoo would create huge management and cultural challenges, analysts warn.
/QUOTE]

The bid approach to Yahoo points to growing frustration at Microsoft after more than a decade of trying to become a major force on the internet.

While its MSN service claims one of the biggest audiences, it has failed to compete head on with a succession of internet leaders, from AOL to Yahoo and Google. “They’ve spent $1bn building a business that is melting like an ice cube today,” said Youssef Squali, an analyst at Jefferies & Co.[

Contributed by Editorial Team, Executive Management Team
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