The perennial rumors finally came true and today Microsoft made an unsolicited $44.6 billion offer for Yahoo!
Microsoft Corp. (NASDAQ:MSFT) today announced that it has made a proposal to the Yahoo! Inc. (NASDAQ:YHOO) Board of Directors to acquire all the outstanding shares of Yahoo! common stock for per share consideration of $31 representing a total equity value of approximately $44.6 billion. Microsoft’s proposal would allow the Yahoo! shareholders to elect to receive cash or a fixed number of shares of Microsoft common stock, with the total consideration payable to Yahoo! shareholders consisting of one-half cash and one-half Microsoft common stock. The offer represents a 62 percent premium above the closing price of Yahoo! common stock on Jan. 31, 2008.
Stock prices are down and Yahoo’s share price is down even more after an awful quarterly report and ongoing organizational turmoil so now is clearly a great time for Microsoft to try bargain hunting. However, as I have observed previously, while the idea of combining Microsoft and Yahoo’s market share in search, advertising, and content Web sites and services is attractive, the significant overlap of actual offerings between the two erstwhile partners is going to be a nightmare to resolve if the acquisition goes through. Unsurprisingly, Microsoft says not to worry:
The combination will create a more efficient company with synergies in four areas: scale economics driven by audience critical mass and increased value for advertisers; combined engineering talent to accelerate innovation; operational efficiencies through elimination of redundant cost; and the ability to innovate in emerging user experiences such as video and mobile. Microsoft believes these four areas will generate at least $1 billion in annual synergy for the combined entity.
Microsoft has developed a plan and process that will include the employees of both companies to focus on the integration of the combined business. Microsoft intends to offer significant retention packages to Yahoo! engineers, key leaders and employees across all disciplines.
That’s what corporate suitors always say when there is significant overlap and occasionally synergy and cost savings are actually realized. More often though, the two erstwhile partners get bogged down for a significant amount of time trying to reorder their joint organizational structure while their competitors laugh all the way to the bank. I wonder if the Microsoft executive team really knows what they are letting themselves in for.
We’ll soon find out – Microsoft expects the deal to close without regulatory hassles in 2H08 and what Yahoo shareholder would turn it down unless another suitor arrives with deeper pockets?