In a sudden turn of events Microsoft has decided to withdraw the offer they made to takeover Yahoo! After over 3 months of fruitless discussions, and even threats of a hostile takeover bid, the head honchos at Microsoft have concluded that it does not make economic sense to raise their bid beyond the final offer of $33 per share or nearly $46.5 billion.
Yahoo! stuck to its demand of $37 per share. The option of a hostile takeover bid does not seem desirable at this point as it would clearly involve a long drawn out proxy war between the parties.
Also, in view of Yahoo!’s imminent deal with Google, Microsoft feel that the acquisition of Yahoo! would involve tremendous headaches with anti-trust laws – a combined Google and Yahoo! ad platform would control over 80% of the U.S. search market – which would bring hassles that are quite clearly unwanted by any purchaser, including Microsoft.
In his letter to Jerry Yang, CEO and founder of Yahoo!, Steve Ballmer, CEO of Microsoft, clearly mentions that Yaho!’s deal with Google would mean harming the effectiveness of Yahoo! Search Marketing’s paid search platform, Panama. It would make it difficult to retain Yahoo!’s talented engineers, and also give complete dominance to Google, with regard to search advertising rates.
Yahoo! shares fell only 15% on Monday, to $24.37 per share, from Friday’s close of $28.67 per share. This is still higher than the stock price before Microsoft announced their acquisition bid, largely due to the market’s expectation that Microsoft may still come back and buy Yahoo! at their weakened share price.
Jerry Yang will undoubtedly have to shoulder the responsibility of proving, to his shareholders, that he has acted in their best interests and done the right thing by not accepting Microsoft’s offer. If he is unable to raise the stock prices within a few months, he may find himself compelled to accept a lower offer or find a new job.
At present however, Yang remains convinced that the company is on the right track and share prices will improve shortly with the new strategies they have put in place. In the meantime Microsoft shares fell by $0.16, While Google shares rose by $13.61. As of now, it would seem that Google is having the last laugh, especially if their new ad deal with Yahoo! comes through.