Microsoft Yahoo

In early February 2008, Microsoft offered to buy Yahoo! for $44.6 billion. Yahoo!'s board of directors rejected the bid, claiming it undervalued the company. After months of negotiations, Microsoft withdrew its offer on May 3, 2008.

On July 12, 2008, Yahoo! rejected the latest deal from Microsoft, stating that "it is ludicrous to think that our board could accept such a proposal."¹ On July 17, Jerry Yang reiterated to shareholders that he will sell Yahoo! to Microsoft for $33 per share or more.²

Fast Facts:

1. Initial offer: $31 per share
2. 62% premium over January 31 stock price
3. Microsoft's second attempt to buy Yahoo!
4. Detroit based pension companies sued Yahoo! for not taking the offer
5. May 18, 2008: A possible new, cooperative, deal between the companies was announced

Background

Microsoft offered to buy Yahoo! for $44.6 billion in a cash and stock deal on February 1, 2008. The board of Yahoo! agreed to reject the bid on February 9, stating the bid highly undervalues their company.

Microsoft sent Yahoo! a letter on April 5, 2008, giving them until April 26, 2008 to accept their offer. Microsoft claimed if a deal was not reached by that date, they would take their proposal to the Yahoo! shareholders and if necessary work to elect a new board of directors for Yahoo!. Microsoft CEO Steve Ballmer also stated if Yahoo! does not accept the offer they will be lowering their bid.

On April 7, the Yahoo! board of directors publicly rejected the offer, stating that it would not be in the best interest of their shareholders to accept the proposal as it is.³

The April 26 deadline passed with no deal established between the two companies. Initially, Microsoft CEO Steve Ballmer and CFO Chris Liddell insinuated that if Yahoo! does not accept the offer by the deadline, Microsoft would pursue more aggressive measures, which would include electing a new board of directors and taking a lower proposal to the shareholders.⁴

On May 3, 2008, Microsoft withdrew their bid to buy Yahoo! after the software firm refused to meet Yahoo's asking price.⁵

In a letter to Jerry Yang, Steve Ballmer said that Microsoft had raised its offer to $47.5bn ($33 per share) but was unprepared to meet the $53bn Yahoo wanted. Microsoft first declared interest 3 months earlier at which time Yahoo's share price was $19.18.⁵

Icahn and the Limited Agreement

On May 18, 2008, it was announced that the two companies were considering a new, more limited, cooperative deal to expand Internet advertising programs in an effort to compete with Google.

Although Yahoo! had been in talks with AOL, Microsoft announced in July of 2008 that they are still interested in Yahoo!, if shareholders vote to appoint a new board of directors. Yahoo! investor Carl Icahn has been reportedly working with Microsoft in an attempt to convince shareholders to replace the current Yahoo! board. Yahoo!'s board meets on August 1, 2008.⁶

In an effort to avoid a struggle for control of the company during the August 1, 2008, shareholder's meeting, Yahoo! reached a settlement with Icahn, which it announced on July 21, 2008. The settlement gives Icahn a seat on the board of directors and the opportunity to appoint two additional members.⁷

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