Will Microsoft Really Walk?
Microsoft insisted that it would acquire Yahoo only on its own terms. Now it said that it will withdraw its offer, after the Internet giant rebuffed a sweetened $33-a-share bid.
But is Microsoft really going to walk away from the biggest deal of the software giant’s 33-year history?
The company has never denied that it would take a hard line in its negotiations with its target. In fact, Microsoft’s chief executive, Steven A. Ballmer, has regularly talked tough — and may now be adopting perhaps the toughest tactic of all.
The possibility of walking away was always present. Even in February, Christopher P. Liddell, Microsoft’s chief financial officer and an architect of its Yahoo offer, has told The Times that he’s willing to play hardball. “You have to be disciplined and ruthless,” he said. “You have to be willing to walk away.”
More recently, Mr. Ballmer reiterated that dropping its bid was a possible strategy.
In recent weeks, many had expected Microsoft to escalate the fight by beginning a proxy fight. Mr. Ballmer has never shied away from brandishing that club, coupled with a tender offer.
But in a recent town hall with Microsoft employees, Mr. Ballmer seemed to suggest that a proxy fight was a relatively unpalatable option. “There’s a lot of downsides and some upsides associated with that,” he said.
Mr. Ballmer’s letter to Jerry Yang of Yahoo suggests that he didn’t have the appetite for that kind of fight. He acknowledged that the Internet company would fight hard against such a move, and might take steps like linking up with Google.
Microsoft’s chief acknowledged in the letter that his company had indeed raised its bid, by about $5 billion. Given its recent disappointing quarter, the software giant already felt pressured to boost its cash-and-stock bid to win over the recalcitrant Yahoo. The latest offer apparently wasn’t enough to placate Yahoo’s board, which reportedly wanted $37 a share.
Perhaps Mr. Ballmer really feels that he could not in good conscience raise Microsoft’s offer significantly without doing harm to his company. But even back when Microsoft first publicly unveiled its bid, analysts said that the company could afford to pay as much as $35 a share, given its ample horde of cash.
And as DealBook has written before, Mr. Ballmer is under a lot of pressure to clinch a deal. Failure to do so would be seen as a major management blunder, and shareholders could raise questions about his leadership.
One sure effect of Microsoft’s move is that, absent a deal agreement by Monday morning, Yahoo’s stock will take a steep plunge. (Silicon Alley Insider’s Henry Blodget estimated that its shares may fall to the low $20s, potentially a 30 percent drop.) That threat has always hung over Yahoo’s board, who would then have to face a legion of angry shareholders — and potentially lawsuits as well.
Of course, Microsoft could later try to reach a negotiated, lower deal at a later point. And that may have been the objective all along.
Go to Previous Item from DealBook »
Go to DealBook’s Full Coverage of Microsoft’s Yahoo Bid »
150px
Microsoft has announced it is dropping its bid to acquire one of their Internet competitors, Yahoo!, after a three-month courting effort by Microsoft.
Steve Ballmer
Microsoft chief executive officer, Steve Ballmer notified Yahoo! chief executive officer, chairman and co-founder, Jerry Yang via a letter that Microsoft was dropping their bid for the Sunnyvale, California based search engine giant.

In a press release from Microsoft, Ballmer said, “Despite our best efforts, including raising our bid by roughly US$5 billion, Yahoo! has not moved toward accepting our offer. After careful consideration, we believe the economics demanded by Yahoo! do not make sense for us, and it is in the best interests of Microsoft stockholders, employees and other stakeholders to withdraw our proposal”.

Microsoft withdrew its bid effort after raising their bid from $44.6 billion to $47.5 billion, which works out at $33 per share. However, Yahoo! were waiting for a bid of around $53 billion, which was more than Microsoft were willing to pay.

Microsoft had previously wanted to takeover Yahoo! in-order to compete with Google, the market leader in online advertising.  The online advertising market was worth $40 billion in 2007 and will rise to an expected $80 billion in 2010.

Some observers, however, are speculating that the bid withdrawal could just be another tactic in their attempt to acquire Yahoo!. Yahoo shares have dropped since the bid was pulled out.