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Microsoft's failed attempt to acquire Yahoo

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  1. Importance of topic to Corporate Finance
  2. Salient points about the topic
  3. Integrate WSJ
    1. Microsoft's cash and stock offer
    2. The purpose of Microsoft-Yahoo merger

When Microsoft made its public bid on February 1st 2008, it surprised many investors. Even if Microsoft's interest in Yahoo had been rumored for a while, Yahoo was actually facing hard times. With the value of Yahoo's stock declining over the last few months, restructuration and lay-offs were expected and Yahoo became suddenly less appealing. However, when the media announced the possible acquisition of Yahoo by Microsoft, it immediately raised questions about synergies, whether or not the deal would be accepted by the regulators and Google's reaction. Combining Microsoft and Yahoo's search engines would become Google's biggest challenge for years to come. Yahoo has also failed so far to convert its 130 million monthly visitors into paying customers. Microsoft could bring about an expertise for this purpose and help Yahoo to do so. Here are the main questions that will be discussed in this report:
? Why is Microsoft interested in Yahoo?
? On which terms will Microsoft acquire Yahoo?
? Will Google try to block this acquisition through regulatory conflicts or other means?
? Will the regulatory authorities allow this acquisition to occur?
? Is it likely that Yahoo shareholders will seek to obtain a higher price from Microsoft?
? Will negotiations restart in 2009?

[...] Yahoo actually spends $ 1.2 billion a year on ?products development? so as to remain competitive against Google. We can presume that Microsoft spends the same amount of money for the same purpose. A combination of their operations could certainly lead to a sort of ?revenue-sharing? arrangement. Besides, the value created from the acquisition will come from Yahoo. Microsoft and Yahoo will be able to combine their world known brands and expertise to provide combined services. Kevin Johnson didn't explicitly say that there would be lay-offs after the deal was concluded but it might be inevitable as "some overlapping is expected in the combination of this size?. [...]


[...] Yahoo is well-known for its contents and has a vast unique number of visitors but has failed to generate real paying customers even if 87% of Yahoo's revenue comes from advertising. As a result of the acquisition, Yahoo would become a company that would benefit from Microsoft's successful business strategy. A memo sent by Kevin Johnson, president of Microsoft's Platforms and Services Division, to Yahoo and key Microsoft executives, was revealed by the Wall Street Journal to the public on February 23rd. [...]

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