The strangest chapter in the Microhoo drama is Microsoft's ridiculously low offer for Yahoo's search business.
I'm catching up on news that broke on Friday, when I chaperoned 11 teens at Six Flags Magic Mountain. Apparently, Kevin Johnson, president of Microsoft's Platforms & Services Division, sent an e-mail to his employees about Yahoo. He revealed how pathetically little Microsoft offered Yahoo for its core search business: $1 billion.
Quick background: On May 18, Microsoft issued a press statement about offering Yahoo a new deal, which turned out to be buying only the search business. On Thursday afternoon, Yahoo released a statement stating that there would be no deal of any kind with Microsoft.
Following that press release, Yahoo announced that it had cut a search and advertising deal with Google. Kevin's memo offers some closure, another dig at Yahoo's board, more fodder for Carl Icahn's proxy fight and a dose of FUD (fear, uncertainty and doubt) for Yahoo shareholders.
Based on Kevin's e-mail, which the stalwart Todd Bishop obtained (hey, I was out of the office), Microsoft offered Yahoo $1 billion for its core search business and another $8 billion investment at $35 a share. The offer is downright unbelievable. For months Microsoft had on the table a $31-a-share offer, valued at $44.6 billion, with executives claiming that search was the main reason for buying Yahoo. So, how does a puny $1 billion offer reconcile with search being the most important part of an earlier $44.6 billion offer for all of Yahoo?
As I explained in May, selling search would be akin to lobotomizing Yahoo, and that was without information about the lowball offer.
At the least, Microsoft's offer was self-serving, with the company gaining the overwhelming benefits from the Yahoo deal on the cheap. That said, the $8 billion investment would have made Microsoft a major Yahoo shareholder with vested interest in its success. Apparently, Microsoft was ready to offer Yahoo good deals on search services, whatever that means, as part of the agreement.
If the offer for Yahoo's search business was sincere, which I doubt, then Microsoft execs sorely misread Yahoo. If Yahoo's board really wanted more money for shareholders, it would have accepted Microsoft's earlier, slightly raised offer.
Business is as much about power as performance. Lawyers are careful about on whose turf certain meetings take place because of the balance of power and which side might gain seeming advantage over the other. Corporate dealings aren't much different. One billion dollars for Yahoo's crown jewel--search--is insulting. It's a slap in the face.
My speculation: Jilted Microsoft tried to take a power position over Yahoo by retracting the merger offer and then offering so much less for something still quite valuable. Maybe Microsoft CEO Steve Ballmer and Kevin Johnson really thought that Yahoo was weak enough to cave.
Wrong. Now matters are worse, with Yahoo sleeping with Google. Microsoft was wrong to start this whole Yahoo merger thing. But to have driven Yahoo to Google is perhaps the greater corporate blunder.
No comments:
Post a Comment