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world domination

Microsoft’s Next Step Toward World Domination: Purchasing Yahoo!

By Uncategorized

I really hate Microsoft, for so many reasons. This just deepens my loathing of the mega software giant. They’re apparently taking a big leap towards taking over the world and killing us all, this time by snatching up Yahoo for a cool $44.6 billion dollars. I don’t even really use Yahoo besides their Flickr service, and consider them way behind in terms of technology and services compared to Google, whose many services and cool technologies I fully implement and support. This deal seems rather hostile and will position Microsoft as an even bigger, more monopolistic company. I still don’t think Yahoo will ever really be able to compete with Google on a level playing field. They are so ingrained into people’s minds as THE premiere search provider that there’s just no way to knock them off their high horse. I’ll be very interested to see where this whole thing goes.

Microsoft Corp. went public Friday with an offer to buy Yahoo Inc. for $44.6 billion, a move designed to create a more credible competitor to industry leader Google Inc. and deepen Microsoft’s position in the market for online business software.

The unsolicited approach, outlined by Microsoft Chief Executive Steve Ballmer in a letter sent Thursday night to Yahoo’s board and published Friday, is aimed at pressing Yahoo to agree to a combination it rejected a year ago. Yahoo acknowledged the proposal and said it would be evaluated “carefully and promptly.”

The offer, for $31 a share in cash and stock, represents a 62% premium to Yahoo’s closing price Thursday. It comes offer comes as Yahoo continues to struggle against Google in the race for online-advertising revenue and Internet- search market share despite efforts to upgrade its systems. Yahoo’s shares have lost about 40% of their value over the past three months.

“While a commercial partnership may have made sense at one time, Microsoft believes that the only alternative now is the combination of Microsoft and Yahoo! that we are proposing,” Ballmer said in the letter to Yahoo’s board.

Yahoo shares jumped 55% to $29.72 in premarket trading. Microsoft fell 4.7% to $31.08 premarket. Google, down about 6% premarket after issuing weaker than expected fourth-quarter results late Thursday, and saw its stock slip further after the announcement and was recently down nearly 7%. The announcement pushed U.S. stock index futures higher.

A deal would bring together two pioneers in their respective industries that stagnated as new competitors did a better job of adapting to changing technology and the habits of users. It’s unclear how the combination of those cultures would work. Microsoft is widely viewed as a lumbering technology giant struggling to become more nimble, while Yahoo is trying to recapture the spark of its more free-wheeling days as an Internet startup.

Yahoo, however, would add a commanding presence in Internet content and users to Microsoft’s deep pockets and near monopoly over the desktop software that enables most routine computer use.

“In our view there is a compelling case that says yes, although the risks of a culture mismatch and potential employee attrition would have to be managed carefully,” Goldman Sachs analyst Sarah Friar said in a note. Goldman Sach has an investment banking relationship with Microsoft. It wasn’t immediately known whether Goldman is advising on the Yahoo offer.

Microsoft said Yahoo holders would be able to trade each of their shares for $ 31 in cash or 0.9509 of a Microsoft share, pro-rated so that no more than half of the overall purchase price is paid in cash. The deal values Yahoo at 65 times earnings. Currently, it trades at 40 times earnings, according to FactSet Research. Yahoo shares haven’t traded at $31 since November.

The companies held talks about partnering or merging in late 2006 and early 2007. Those talks included the potential of a merger proposal, but Yahoo told Microsoft in February it wasn’t interest in being acquired.

He noted Yahoo’s decision at the time was based on the “potential upside” of its own plans and a “significant organizational alignment,” led by the long- awaited overhaul to its search-advertising system dubbed Project Panama.

“A year has gone by, and the competitive situation has not improved,” Ballmer wrote.

Microsoft noted the market for online advertising is “increasingly dominated by one player. Together, Microsoft and Yahoo can offer competitive choice while better fulfilling the needs of customers and partners.”

Microsoft and Yahoo each have struggled to get bigger in Internet searches and search advertising despite heavy investment. Google was by far the most-used U.S. search engine in December, with a 58.4% market share, compared with 22.9% for No. 2 Yahoo and 9.8% for No. 3 Microsoft, according to data from ComScore Inc. (SCOR).

“The fact is that in this particular industry, scale matters,” Kevin Johnson, Microsoft’s president of platforms and services, said in an interview.

The company added the deal would also result in “combined engineering talent to accelerate innovation,” a hint that Microsoft can’t alone take on Google with its current staff. Microsoft said it would offer “significant retention packages” to employees, executives and engineers across Yahoo.

Microsoft expects at least $1 billion in annual cost savings and revenue enhancements from a deal, which it says could close in the second half of the year.

Takeover speculation fired back up after Yahoo late Tuesday posted a drop in fourth-quarter net income and issued a 2008 outlook that fell short of analysts’ expectations. Goldman Sachs analyst John Marshall, in a report published Friday, said the chances of a Microsoft bid for Yahoo had risen and recommended buying options on Yahoo. He cited the growing importance of the online services business to Microsoft. The software giant also cited that business, which involves licensing companies to use constantly updated software applications accessed via the Internet.

Speculation about a Yahoo buyout has swirled since last year, when Microsoft’s interest in such a deal was reported. Buying Yahoo would theoretically place Microsoft as significant competitor in the Internet search market, where it has so far lagged behind both Yahoo and Google. Microsoft, which has thriving software businesses that could fund a much deeper foray into Internet markets, hadn’t actively dispelled rumors it was considering an acquisition of Yahoo.

Microsoft said it will host a conference call to discuss the proposal at 8:30 a.m. EST. The company is to present a strategic update for analysts Monday in New York.