Yahoo! Rejects Microsoft's Offer, Says 'Still An Option'

mikkl666 writes "In response to an open letter from Steve Ballmer, Yahoo! posted a press release claiming that Microsoft's offer 'substantially undervalues Yahoo!' and is therefore not in the best interest of the company. They also bemoan that the letter 'mischaracterizes the nature of our discussions' and that the threat to make an offer directly to the shareholders is 'counterproductive and inconsistent with the stated objective of a friendly transaction'. Nevertheless, they explicitly point out that a transaction with Microsoft is still an option, but only if they are willing to pay 'a price that fully recognizes the value of Yahoo!'"

crack smoker

MS are offering 2x the going share price. what secret pot of gold does yahoo managment think they have that's worth so much?

oh and he must be pretty dense to think "friendly negotiations" are still an option if MS goes to the shareholders directly.

Re:crack smoker

Hello? Rob Enderle? Is that you?

Re:crack smoker

I think that it's just another nice way of refusing.

I think that the Yahoo! folks realize that Yahoo! and Microsoft don't really mix together.

Microsoft only wants the userbase and the brand, not the products. If Microsoft were to acquire Yahoo!, all their technology (Apache, Oracle, MySQL, PHP, Java, etc running on top of Linux and BSD) would be replaced by Windows servers running IIS. That would make most of the Yahoo! engineers redundant.

I am pretty sure that they would just add the missing features to their Live products, and rebrand them as Yahoo! The Yahoo! products will start a short (i.e.: 1-2 years) death as soon as Microsoft buys them, to make room for Yahoo! branded MSN/Live ones.

Imagine a .NET/Mono based Zimbra.

Furthermore, I assume that at that level all negociations are 'friendly'. Unless they fail, when they become friendly only for the winning side.

Finally, I do believe that Yahoo! is worth more than that ammount, because there are countries where no competition exists (see Romania). In a blog from one of the Fedora Art Group members, the blogger said that over 90% of the email addresses in Romania were Yahoo! ones. I can confirm this with the Messenger part. I've never seen anyone giveout a GTalk or MSN id in Romania, only Yahoo!.

My yahee, my yahoo

the blogger said that over 90% of the email addresses in Romania were Yahoo! ones. I can confirm this with the Messenger part. I've never seen anyone giveout a GTalk or MSN id in Romania, only Yahoo!.

So that's what the Numa Numa guys were singing about: "My yahee, my yahoo."

Re:crack smoker

Microsoft only wants the userbase and the brand, not the products. If Microsoft were to acquire Yahoo!, all their technology (Apache, Oracle, MySQL, PHP, Java, etc running on top of Linux and BSD) would be replaced by Windows servers running IIS. That would make most of the Yahoo! engineers redundant.


Ok, so devil's advocate / tinfoil hat time.

I'm not exactly going to predict this because, come on, Microsoft, but I could sort of see them leaving Yahoo! alone technologically, at least in the short term.

Let's assume there's some viable evil reason for Microsoft to want expertise with PHP/MySQL/etc. in their stable. Microsoft basically cannot grow something like that organically from within. You can't create Microsoft MySQL without essentially admitting there's something wrong with SQL Server, etc.

But you could plausibly buy Yahoo, point to the past migration nightmares of Hotmail, and say that you were wisely letting Yahoo continue with their current technologies due to those experiences.

Re:crack smoker

No, they'll do what they did with hotmail.
They'll leave them alone until it makes sense to move over to windows/IIS. Hotmail stayed on BSD for years, but it's been IIS for quite a while now. they're not stupid, they'll treat it as business and move them over when it makes sense to do so. But the Golden rule in most markets is you sure as hell better eat your own dogfood if you expect your customers to, and eventually they'll have to move Yahoo! over if they do buy them.

Re:Hotmail wasn't migrated sooner because...

yet... Windows Server got a lot better during that time frame, and I have to wonder how much of that was driven by trying to do projects like Hotmail on it and paying attention to the ways in which they spectacularly failed.

Ehhhhh...
While the parent post doesn't quite reach the level of astroturfing, it does feel like an attempt to find a silver lining in what really was an unmitigated fiasco for Microsoft. The company announced quite loudly that it would be migrating to NT, then failed repeatedly. It then more quietly began migrating to Windows 2000, then announced success, then had to retract that. It then issued a white paper on the migration, arguing that Windows 2000 was a better platform than UNIX, even though there were still Solaris and even BSD servers being used until 2003, well after the white paper was issued, and in many cases, BSD code was used to replace the parts of the Windows server OS that just weren't up to hosting a major application like Hotmail.
Please note that I am not saying there is anything wrong with Microsoft using BSD code - the BSD license clearly permits that. The point is that for whatever reason, despite immense financial resources and huge financial and PR incentives, Micrsoft appears to have been completely incapable of making an industrial-strength OS as late as 2002 that could match the power and security BSD and Solaris had in 1997, and when it did have success, it was by simply appropriating the superior code from the BSD base.
Additionally, and actually this is my main point in writing this post, whether or not Microsoft had bought and tried to migrate Hotmail, the evolutionary pressure to improve its OS's security and scalability would have been just as strong. So I really don't see the silver lining in this story the way the parent post does. If there is a silver lining for Microsoft, it's that they learned that BSD code is often just plain better than Microsoft code, and simply taking the BSD code is more effective and a lot cheaper than trying to catch up. One wonders why they don't take something like OpenBSD and make a Microsoft front end for it. Windows would then basically be a window manager, a lot cheaper and simpler to maintain, and the heavy lifting would be done by a system that has time and time again been shown to be better than any Windows ever built, especially in terms of security, which is really the biggest issue with Windows these days, what with there being multiple botnets of hundreds of thousands of Windows machines out there eating massive amounts of internet, LAN and machine resources.

Re:crack smoker

"what secret pot of gold does yahoo management think they have that's worth so much?"

a CEO that does not jump [youtube.com] on stage and throw [theregister.co.uk] chairs

Re:crack smoker

That's drawing down their cash reserve rapidly without generating much growth.

That's an interesting soundbyte. Can you explain how stock options paid to executives (which executives?) are actually eating into a $30 billion dollar cash reserve? Those must be some pretty large stock grants.

Add to that the failure of their flagship OS on the market

Looks like someone is connecting all those Vista machines that are not being sold to the internet. [hitslink.com] I'd like to have me a few of those failures every decade or so.

Pay for Yahoo's true worth?

I thought Yahoo wanted more money, not less.

This is like...

This is like watching ugly people kiss.

Re:This is like...

Right. Microsoft is an M and Yahoo is a Y. We know which penetrates what. Microsoft just doesn't yet realize they're the bitch.

Yahooooooo!!!!

The real question is why?

What does Yahoo! have that Microsoft prizes so highly? Anything that Yahoo! has done successfully (although not often profitably) has already been "independently reinvented" by Microsoft.

The most likely result of such a purchase would be that they'd try to turn Yahoo! into another Microsoft division and destroy what they were after in the first place.

Seems a strange purchase to be chasing after so hard...

Re:The real question is why?

Yahoo has more pages and traffic than just about any site on the internet. Yahoo and Google are Microsoft's only real competitors on the internet. So my guess is they simply want to absorb one of their competitors to leverage against the other. Microsoft's not gaining market or mind share on their own, so like usual they're trying to buy it.

Re:The real question is why?

Microsoft has a ton of cash it is sitting on and it's burning a hole in their pocket. They're also a company that has lost an overall focus and their major enemies from the past generations are gone. They are building up a new "feindbild" with Google in the lead role -- so to them taking over number 2 (Yahoo) would be a logical procession if they can't buy #1 (Google).

Microsoft always needed an enemy to rail against (because they usually didn't innovate, rather copied and improved upon). They have been at this unfocused lash-out stage for quite a number of years.

But really, this purchase is redundant. They're better off taking the excess cash, paying dividends, and let that be the end of it. The MS/Yahoo merger will be stillborn. The management there will be hostile and leave after the buyouts and the Microsoft drones won't be any better.

Re:The real question is why?

Yahoo is ahead of Microsoft in a few areas... Yahoo's search is worse that Google (IMO), but Microsoft search is worse. Yahoo has Flickr and the social network 43Things, neither of which have a Microsoft equivalent. There's Yahoo Mail and Yahoo Groups, both of which are superior to what Microsoft has. But I agree... Microsoft has a tendency to be heavy-handed with new acquisitions, not to mention the ones it drowns in the bathtub on purpose.

Re:The real question is why?

Yahoo's web-services run on Apache servers, and are often developed with open source software in mind.

I can't imagine that would continue if Microsoft bought them out. And most of the in-house developers would have to learn asp real quick, or be out of jobs.

Re:The real question is why?

my bloody underpants

Hey look, I have no problem with women on Slashdot, but if you're going to hang out here you're going to have to learn to deal with the things that make you different from men.

This highlights the decline of both companies

Why on Earth would MSFT offer so much when they could/should develop the search technology, content, and customer base themselves? I don't think they can.

Why would Yahoo refuse to accept an offer that is clearly more than they'd get from anyone else? Maybe management has its head in the sand as to its marketplace position.

Going hostile on the acquisition is really, really stupid since one of the best parts of an IT company is the IT talent.

Going hostile will antagonize the whole company, including the best IT talent, IMO.

What's Microsoft gonna do with no cash?

When Microsoft burns through all of their cash buying Yahoo, they might be in a whole bunch of trouble. No more ability to absorb losses in business areas when trying to break into a market.

So for this reason. I hope Yahoo accepts the deal.

Yahooligans, more like it.

Looks like Yahoo has a lot of computer programmers, and not enough financial analysts. Company's 'value' = that which others are willing to pay for. It's like me selling soap on ebay and asking for $50 when the highest bidder is only offering $15. Guess what, either I take the $15 or I don't sell my soap.

If I was a shareholder, I would be very mad. If Microsoft is going to do a hostile take over by buying their shares on the open market, they'll probably get Yahoo for less than their current offer. Same thing happened with Cablevision a few months ago. When the Dolan family offered a buy-out for $36, some 'major' shareholders rejected the offer, pompously saying that Cablevision is worth more. Well guess what, the market didn't think so. The second the buyout was rejected, the stock plummeted below $30 and is now at $23!

Just a part of Microsoft's Open Source Strategy

Just think of how many FreeBSD/Linux servers would disappear from Netcraft if Yahoo went over to the Dark Side?

Embrace/Extend/Extinguish

Yahoo is way overpriced

Yahoo's stock is way overpriced. They're a large, mature company, not a growth company. Revenue is down. So they should have a P/E ration in the 10-20 range, like IBM, Microsoft, Oracle, and SAP.

But YHOO has a P/E ratio of 59 today. Which is far, far too high. Their market cap is around $37 billion. Divide that by 4 and you're close to what the company is really worth. Maybe $10 billion.

This is why Microsoft's institutional shareholders are unhappy with the proposed deal. Microsoft is overpaying, and that makes Microsoft less valuable.

Of course, if Microsoft just drops the deal, the bottom falls out of Yahoo stock, and it probably goes down to something closer to what it is really worth.

Google is overpriced too, but not as badly. Their P/E is around $36, while their revenue is flat or declining slightly. The fundamental problem with Google is that all those free services they give away don't make them any money. They've never found a second big moneymaking product.

Re:Yahoo is way overpriced

PE isn't the be all end all of valuing companies. In Yahoo's case, it has particular problems because Yahoo has substantial unconsolidated holdings in other companies such as Yahoo Japan and Alibaba. The value of these companies shows up in the P part of the ratio, but the earnings aren't counted in the E part. The value of these holdings alone would put the value of the company close to the $10 billion number you propose.

If we believe Yahoo's forecasts, their stock price has a fair value closer to $40/share, but even coming up short of this doesn't make them very overpriced. They are in a rapidly growing industry and have had double digit revenue growth for many years, so I think they still qualify as a growth company.

Re:I figured it out

I still can't even figure out why Microsoft would want them other than to just make them go away.

Bingo!

The only motive here is the elimination of a competitor. Price is no matter; Microsoft wants Yahoo! destroyed because it's one of the two barriers in the way of Microsoft owning the search business.

It's similar to back when Microsoft decided that Netscape had to die. It rapidly became clear that the leaks were true: Bill and Steve had decided that they would lose whatever money they had to lose to own the browser market. They succeeded, and although they've made no money from IE at all (i.e., they've sunk the entire cost of developing it), they are now firmly in control of what the majority of eyes see on the Web. Sinking a few hundred million into IE was a small price to pay for that power.

Their goal now is to control what all those eyes see when they search the Web. Their problem is that most people think either "google" or "yahoo" is what you type to do a search. Not even MS fanboys like MS's search. They understand that they can't compete in the search arena on quality. So they're going to use their huge pile of money to destroy their remaining competitors. Yahoo is the easiest target, so they're going after it first. And they'll lose whatever they have to lose to kill it.

Then it'll be google's turn in the crosshairs.