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Microsoft Puts Yahoo in a $44 Billion Bear Hug
by
findingDulcinea Staff
Microsoft publicly discloses its takeover bid for Yahoo, hoping that Yahoo's major stockholders will pressure its board to accept. The long-term plan is to compete more effectively with Google in online advertising.
30-Second Summary
Microsoft Corp. has publicly disclosed that it made an offer to acquire Yahoo for $31 a share, payable in a combination of cash and Microsoft stock.
The stock offer is a 62 percent premium on Thursday’s closing price of Yahoo.
A statement issued by Microsoft observes that online advertising “is increasingly dominated by Google. Together, Microsoft and Yahoo can offer competition while better fulfilling the needs of customers and partners.”
Yahoo, whose Board Chairman Terry Semel resigned yesterday, issued a statement saying that its board will evaluate the offer carefully and promptly. Henry Blodget, of digital business blog Silicon Alley Insider, describes the “aggressive” takeover bid as “a brilliant move by Microsoft.”
By making the offer public, writes Blodget, Microsoft is “going over the head of Yahoo’s management team straight to independent shareholders, in the hopes that the shareholders will force management to sell.”
Microsoft and Yahoo have been engaged in merger talks before. The discussions ended in early 2007, and analysts at Forbes concluded that had a deal gone ahead it would have presented only a meager threat to Google’s dominance.
The stock offer is a 62 percent premium on Thursday’s closing price of Yahoo.
A statement issued by Microsoft observes that online advertising “is increasingly dominated by Google. Together, Microsoft and Yahoo can offer competition while better fulfilling the needs of customers and partners.”
Yahoo, whose Board Chairman Terry Semel resigned yesterday, issued a statement saying that its board will evaluate the offer carefully and promptly. Henry Blodget, of digital business blog Silicon Alley Insider, describes the “aggressive” takeover bid as “a brilliant move by Microsoft.”
By making the offer public, writes Blodget, Microsoft is “going over the head of Yahoo’s management team straight to independent shareholders, in the hopes that the shareholders will force management to sell.”
Microsoft and Yahoo have been engaged in merger talks before. The discussions ended in early 2007, and analysts at Forbes concluded that had a deal gone ahead it would have presented only a meager threat to Google’s dominance.
Headline Links: ‘Microsoft Makes Bid for Yahoo’
“Yahoo shares jumped to $29.45 in premarket trading,” writes The Wall Street Journal. “Microsoft closed at $32.60 and dipped to $32 premarket.” The offer is subject to negotiation, but Microsoft said that the deal could be completed by the second half of the year.
Source: The Wall Street Journal
The offer comes the morning after Yahoo announced that Terry Semel had resigned as chairman of its Board of Directors, effective Jan. 31, 2008. In an oddly worded announcement that Semel initiated discussions with the Board several months ago about stepping down from the chairman role once the board was able to identify a successor. He targeted the time of the January board meeting for his departure.
Source: Yahoo
Background: ‘Why Yahoo Can’t Fix Microsoft’
After takeover talks ended last year, Forbes concluded that the companies together would have been unable to mount an effective challenge to Google. “The least-bad option for Microsoft might be to give up and spin out is online assets to Yahoo,” wrote Forbes in May last year.
Source: Forbes
Reaction: Yahoo responds
Yahoo issued a statement online. The company said that “its Board of Directors will evaluate this proposal carefully and promptly in the context of Yahoo's strategic plans and pursue the best course of action to maximize long-term value for shareholders.”
Source: Yahoo
Opinion & Analysis: Henry Blodget
“By going public with the offer, Microsoft is seeking to 'pull a Murdoch'—going over the heads of Yahoo's management team straight to independent shareholders, in the hopes that the shareholders will force management to sell. This is the same play Murdoch used so brilliantly to swipe Dow Jones from the Bancroft family,” writes Henry Blodget of Silicon Alley Insider.
Source: Silicon Alley Insider
Reference: Bear hugs
The offer by Microsoft is called a "bear hug,” a move in which a bidder who has been rejected by the target's board publicly discloses the offer, hoping to cause the target's stockholders to pressure the target into accepting it. When a corporation is publicly traded, it is owned by a large number of institutional and individual stockholders. The corporation's management team reports to its Board of Directors, which is the ultimate overseer and has strict fiduciary duties to the stockholders of the corporation. Corporate directors are protected by a "business judgment rule" that presumes a board's actions are proper if the directors have discharged their duties of loyalty, care and good faith to the corporation. This effectively puts the board in a position to "just say no" when faced with an offer. The law firm of Debvoise & Plimpton offers a publication called "Introduction to Hostile Takeovers."
Source: Debvoise & Plimpton
Historical Context: Hostile takeovers
One of the first hostile takeovers was Louis Wolfson's ultimately futile attempt to acquire old-line retailer Montgomery Ward in 1954.
Source: Time magazine
Hostile takeovers in the 1980s were associated with junk-bond financed takeovers that led to the dissembling of companies, as characterized in the book and movie "Barbarians at the Gate."
Source: Dillon, Read & Co. Inc
But in the early 1990s came the advent of strategically driven "civilized takeovers," practiced even by blue chip companies such as IBM, Johnson & Johnson and Hilton Hotels.
Source: The New York Times
Bidders who are rejected in more civilized takeoffer preceedings often counter with public bear hugs. Successful bear hug approaches include IBM's acquisition of Lotus Development in 1995, and Oracle's acquisition of PeopleSoft in 2003.
Source: Forbes
In February 2004, Comcast tried but failed to use a bear hug to pressure the board of directors at the Walt Disney Company to accept a takeover offer.
Source: CFO.com
After Wolfson's death in December last year, a former law school dean reviewed the impact the "original corporate raider" had on U.S. business practices. Henry G. Manne wrote that Wolfson "activated and energized the market for corporate control, was the primary cause of the revolutionary restructuring of American industry in the 1970s and '80s, and the ensuing economic boom."
Source: The Wall Street Journal
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