If you’ve been living under a rock for the past week, then I will excuse you some measure of ignorance concerning the possibility of a hostile takeover of web original Yahoo. It seems that Microsoft, in a last ditch effort to gain market share on Google and a semblance of internet integrity, has put forth what is loosely being described as a ‘pleasant hostile takeover.’
The offer was placed on the table akin to a nervous young male’s proposal on the sands of a particularly lovely beach. A whopping $44.6 billion was offered as a cash-and-stock bid to acquire Yahoo. The offer was contained in a letter to the Yahoo board of directors, and amounts to $31 a share represents a 62% premium over Yahoo’s closing price on the Thursday before the offer was proffered.
"We have great respect for Yahoo, and together, we can offer an increasingly exciting set of solutions for consumers, publishers, and advertisers while becoming better positioned to compete in the online-services market," Microsoft CEO Steve Ballmer said in a statement.
If you wanted a solidified reason, clothed in an attempted ambiguous description, look no further than Microsoft’s own words. "Today, the market is increasingly dominated by one player, who is consolidating its dominance through acquisition. Together, Microsoft and Yahoo can offer a credible alternative."
Or, in the Joshua S. Hill-paraphrased version; “Today, the internet is controlled by Google. They keep buying stuff, and we keep looking worse and worse through failure after failure. Please, oh please Yahoo, together maybe; just maybe, we can gain back some market share if we team up?”
Michael Gartenberg, an analyst at Jupiter Research, said it's "clear that there is increased pressure on Microsoft from Google, and they recognize that. Way back when, Yahoo wasn't that interested in a Microsoft deal. What a difference two years make. Microsoft has a pile of money, and Yahoo has experienced problems of its own. Ballmer, in the past, has historically not loved these types of deals. It is indicative of how different the world is now."
And Google is very much at the center of this entire deal, both as a catalyst but also as a possible alternative.
But even before being considered an alternative, Google’s Chief Legal Officer David Drummond, came out and said that Microsoft’s proposed bid “raises troubling questions.”
"Could Microsoft now attempt to exert the same sort of inappropriate and illegal influence over the Internet that it did with the PC? While the Internet rewards competitive innovation, Microsoft has frequently sought to establish proprietary monopolies--and then leverage its dominance into new, adjacent markets," he writes in a blog post posted on Sunday. "Could the acquisition of Yahoo allow Microsoft--despite its legacy of serious legal and regulatory offenses--to extend unfair practices from browsers and operating systems to the Internet?"
Having waited a bit to write this article, it has allowed me to see many of the subsequent stories concerning this possible merger. Straight away we have the possibility that Yahoo may revisit earlier talks with Google, as a way to convince the Yahoo shareholders to rebuff the Microsoft offer. (The only way that Yahoo can rebuff a hostile takeover is to provide a more lucrative offer to the shareholders. In this case, it could be a financially beneficial alliance with Google.)
Two sources who spoke to Reuters are saying that Yahoo is not happy with the $31 per share offer, feeling that the company is worth more. Apparently as a result, Yahoo management is considering the Google alternative. The Google alternative, as I’ve somewhat inadvertently labeled it, is a twofold possibility; instead of being entirely swept in to a Microsoft hierarchy, Yahoo would outsource its search and advertising to Google, leaving room to concentrate on areas where it is technologically superior to Google. These areas include mobile applications, social network and content sharing.
Many of us believe that this would simply amount to an admission by Yahoo that it has lost the online search battle to Google, but such an admission would simply be a verbalization of something we already knew. In addition, Yahoo would be able to maintain its independence and maintain its own unique corporate culture, a culture which would almost likely be swallowed by Microsoft in the advent of a takeover.
The Google alternative is actually somewhat humorous in its origins. On Sunday, following the news of Microsoft’s bid, Google chief exec Eric Schmidt telephoned Yahoo’s founder Jerry Yang, to propose working together. Apparently, and this is half unconfirmed rumor, Schmidt effectively offered help in any way to circumvent any Microsoft takeover.
Wall Street is predicting regulatory concerns will be raised if Yahoo were to swing towards a Google alliance. The theory is that with the possibility that Google could inherit Yahoo’s ad and search wings it would diminish competition.
Microsoft echoes this concern as it struck back at David Drummond’s “concerns” by saying that "The alternative scenarios only lead to less competition on the Internet," (Microsoft General Counsel Brad Smith said in a statement). They added that they believed a merger with Yahoo would allow for a "compelling number two competitor for Internet search and online advertising" to the current market leader, Google.
To me however, it seems like a no-win situation for anyone, as regardless of how you look at it, there will be one less search and advertising company out there. Whether Microsoft or Google sweep it in to their hierarchy, Yahoo will not exist as it once did, offering its own competition.
In the same blog post, Drummond pointed the finger at Microsoft’s past heavy handed approach to PC’s, in which they have created a vast unfair monopoly. This is proven over in Europe where the European Union has taken them to task for the monopolistic tendencies which have led to their success. The inherent near-inability to use anything but Internet Explorer and MSN Messenger when Windows is first installed is just one of the many overarching concerns that is raised when Microsoft Windows is brought to mind.
"Could a combination of the two take advantage of a PC software monopoly to unfairly limit the ability of consumers to freely access competitors' email, IM, and Web-based services?" Drummond said.
With Yahoo and Microsoft both owning their own email clients – Yahoo Mail and Hotmail respectively – one would expect an uber mail client to emerge to combat Google Mail; a web-based email client that is in no way the market leader (though preferred amongst the geek community).
"Today, Google is the dominant search engine and advertising company on the Web," Smith said in replying to Google on Sunday. "Google has amassed about 75 percent of paid search revenues worldwide and its share continues to grow."
This is a surprising admission from Microsoft, who in any other context would label themselves the market leader. As Tom Merritt said on episode 653 of Cnet’s wildly popular Buzz Out Loud Podcast, Microsoft are willing to use the marketing lingo as best suits their current needs. But once again, I point to the fact that, regardless of who takes Yahoo, there will be one less search and advertising company providing competition.
The bid, which will put Microsoft in to a position where it needs to borrow money for the first time in the company’s history, is being slowly examined by Yahoo. They have made certain to ensure that everybody – both employees and the consumer market – that they will take their time deliberating over this offer, and any other offers (alongside the Google offer, there are reports from sources saying that Yahoo has also received offers from media, telecoms and private equity groups).
In a memo to Yahoo employees on Friday, which was obtained by Reuters on Sunday, Yahoo leaders wrote: "We want to emphasize that absolutely no decisions have been made -- and, despite what some people have tried to suggest, there's certainly no integration process underway."
Needless to say, this is going to prove one of the largest technological deals of the 21st century. But once again referring to Tom Merritt from Cnet, this is going to unfold over the entirety of the year. Do not expect a quick resolution to this; there is far too much at stake for everybody, starting at Yahoo and Microsoft and spiraling out to include Google and others.
Joshua Hill, a Geek’s-Geek from Melbourne, Australia, Josh is an aspiring author with dreams of publishing his epic fantasy, currently in the works, sometime in the next 5 years. A techie, nerd, sci-fi nut and bookworm.
