Ballmer's Yahoo FUD Letter

Joe Wilcox News Commentary. Sticks and stones may break my bones but words will never hurt me sink my share price.

Microsoft's April 5 letter to Yahoo's board is one of the nastiest pieces of FUD (fear, uncertainty and doubt) communications penned in the high-tech era. Microsoft seeks to set Yahoo shareholders against the 10-member board of directors. The letter, while written for the board, is really for shareholders. Microsoft's publication of the letter is evidence enough of the audience.

Interpretation of Microsoft CEO Steve Ballmer's letter is necessary to dispel some of the FUD.

Ballmer wrote:

"It has now been more than two months since we made our proposal to acquire Yahoo! at a 62 percent premium to its closing price on January 31, 2008, the day prior to our announcement. Our goal in making such a generous offer was to create the basis for a speedy and ultimately friendly transaction. Despite this, the pace of the last two months has been anything but speedy."

Real meaning: The offer wasn't generous, by any interpretation outside of fear. Microsoft reportedly offered more about a year earlier—around $40 a share. Microsoft's offer caught Yahoo shares trading at lower value. Microsoft offered more than the lower value, but much less than the earlier offer. There's no charity here. Microsoft wants Yahoo at bargain-basement pricing.

Ballmer wrote:

"We've seen no indication that you have authorized Yahoo management to negotiate with Microsoft. This is despite the fact that our proposal is the only alternative put forward that offers your shareholders full and fair value for their shares, gives every shareholder a vote on the future of the company, and enhances choice for content creators, advertisers, and consumers."

Real Meaning: The only "full and fair value" Microsoft's letter offers is fear—that Yahoo shares will further decline and during a period of huge economic uncertainty. Macroeconomic factors are already frightening enough. Ballmer plays those fears:"During these two months of inactivity, the Internet has continued to march on, while the public equity markets and overall economic conditions have weakened considerably."

As for choice, why would there be more from the elimination of a successful advertising/media company and the turbulent integration process that would follow a hostile merger?

Ballmer wrote:

"Public indicators suggest that Yahoo!'s search and page view shares have declined...By any fair measure, the large premium we offered in January is even more significant today. We believe that the majority of your shareholders share this assessment, even after reviewing your public disclosures relating to your future prospects."

Real meaning: Actually, according to ComScore, Microsoft and Yahoo both saw slight search declines in February. Ballmer omitted Microsoft's similar circumstance. The "large premium" is overstated.

Ballmer wrote:

"Given these developments, we believe now is the time for our respective companies to authorize teams to sit down and negotiate a definitive agreement on a combination of our companies that will deliver superior value to our respective shareholders, creating a more efficient and competitive company that will provide greater value and service to our customers."

Real meaning: Microsoft has so far been unsuccessful in its attempts to bully Yahoo's board. The only real difference between Yahoo on Jan. 1 and today is Microsoft's hostile offer. Yahoo's situation isn't otherwise worse. It's perception caused by the merger offer spotlight.

Ballmer wrote:

"If we have not concluded an agreement within the next three weeks, we will be compelled to take our case directly to your shareholders, including the initiation of a proxy contest to elect an alternative slate of directors for the Yahoo! board. The substantial premium reflected in our initial proposal anticipated a friendly transaction with you. If we are forced to take an offer directly to your shareholders, that action will have an undesirable impact on the value of your company from our perspective which will be reflected in the terms of our proposal."

Real meaning: If Yahoo doesn't play it will pay. Microsoft will take the company or take it out. This isn't even an implicit threat. It's direct and deliberate.

Create, Communicate, Collaborate with IT Professionals at Ziff Davis Enterprise IT Link.