More than three months after Microsoft stunned the IT world by offering more than $40 billion to acquire search and Internet media company Yahoo, the Redmond, Wash.-based software giant has pulled the offer, citing what it said was Yahoo's unwillingness to accept even a sweetened offer.
"In our conversations this week, we conveyed our willingness to raise our offer to $33.00 per share, reflecting again our belief in this collective opportunity," Microsoft CEO Steve Ballmer said in a letter to Yahoo CEO Jerry Yang, which was included as part of Microsoft's announcement on its web site.
"This increase would have added approximately another $5 billion of value to your shareholders, compared to the current value of our initial offer. It also would have reflected a premium of over 70 percent compared to the price at which your stock closed on January 31," Ballmer wrote. "Yet it has proven insufficient, as your final position insisted on Microsoft paying yet another $5 billion or more, or at least another $4 per share above our $33.00 offer."
Yahoo executives responded by saying they still think Microsoft undervalued the company, and that they are confident they can grow their business without the distraction of a takeover attempt confronting them.
"This process has underscored our unique and valuable strategic position," Yang said, in a statement posted on Yahoo's corporate web site. "With the distraction of Microsoft's unsolicited proposal now behind us, we will be able to focus all of our energies on executing the most important transition in our history so that we can maximize our potential to the benefit of our shareholders, employees, partners and users."
Ballmer had written an earlier letter to Yang, giving him and Yahoo's board until last weekend to start negotiating or face the prospect of a hostile takeover attempt by Microsoft. Ballmer told Yang in the latest letter, Saturday, that Yahoo's response and strategy to counter a hostile bid proved to help unravel Microsoft's acquisition plans. '
"We regard with particular concern your apparent planning to respond to a 'hostile' bid by pursuing a new arrangement that would involve or lead to the outsourcing to Google of key paid Internet search terms offered by Yahoo! today," Ballmer wrote.
Microsoft's decision frees the company from a likely protracted attempt to acquire Yahoo, including what may have been a lengthy effort to clear anti-trust hurdles. But it also leaves Microsoft in the position of finding ways to bolster its online and advertising revenue strategy, and also leaves Yahoo with a potentially rough Monday on Wall Street. Yahoo's share price rose sharply after Microsoft first made its takeover bid public, and Microsoft's decision to walk away could put pressure on Yahoo stock.
Microsoft has been struggling to gain traction for its online properties, including those under the "Live" banner, as rival Google has enjoyed continued success in building an online advertising juggernaut. Yahoo would have given Microsoft a greatly expanded web and online advertising footprint, ownership of a leading brand and a slowly growing software business that includes Software-as-a-Service unit Zimbra.
"I still believe even today that our offer remains the only alternative put forward that provides your stockholders full and fair value for their shares," Ballmer wrote. "By failing to reach an agreement with us, you and your stockholders have left significant value on the table.
"But clearly a deal is not to be," Ballmer wrote.