Steve Ballmer Prepares Yahoo for the Kill
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News Commentary. Out of the mouths of CEOs come stock slapdowns. Microsoft's Steve Ballmer has suddenly made Yahoo into one helluva takeover target. |
[Editor's Note: In a departure from form, I will mostly blog shorter posts today so that I can post more to Apple Watch and Microsoft Watch. It's a stylistic experiment; please offer feedback in comments or by e-mail.]
Steve did it all by seemingly saying, once again, that Microsoft wouldn't buy Yahoo. What else can explain Yahoo's share collapse after making gains following news that Jerry Yang would step down as CEO? Microsoft held its annual shareholders' meeting yesterday morning, for about an hour. Yahoo's stock climbed to over $12 on Tuesday on Jerry's news, but fell to a $9.14 closing price yesterday following Steve's statements. Today, Yahoo closed at $8.95. Market cap: $12.41 billion.
I listened to the shareholders meeting yesterday, but focused blogging over at Apple Watch rather than writing up the annual gathering. Catchup today is perhaps better, because there are two days of Yahoo stock closings for perspective.
It would help everybody if Microsoft's CEO would be absolutely clear on the company's position with respect to Yahoo. He reminds me of one of those parents who says to a teenager: "No you can't go to the movies. You're grounded. That's final." But because the parent's heart really isn't into saying no, he or she comes back later and says, "But if you wash the dishes and clean your room maybe you can go." It's a no with a qualified maybe. Steve said yesterday:
Let me be as clear as I've tried to be publicly. We are done with all acquisition discussions with Yahoo. I've said that a bunch of times. Somehow some of the people have gotten confused, nonetheless. We, we did our best. We thought we had something that made sense. It didn't make sense to them. We've moved on.
But he didn't stick with that position:
With that said, I've also been clear if they were interested we would still be, I think, an interesting possibility to look at a search collaboration with Yahoo as we had proposed last summer. There's no active discussion on that front but we'd be very open to it. But acquisition discussions are finished.
That sounds more like maybe, with a qualified no. So which is it? Yahoo has publicly indicated for months that it would entertain some kind of deal. If the door is cracked, why isn't either side opening it up? My two cents: Whatever Yahoo wants from Microsoft, it's not getting. Yahoo's stock has collapsed, and recession is sweeping global economies. Microsoft would never pay as much as Yahoo would really want.
As for that search deal, Steve dangles hope that can't be fulfilled. Microsoft's limited acquisition proposed last summer no longer makes sense. Yahoo's value has fallen so low, Microsoft executives would be nuts to go forward with the proposal. Strangely, one portion is more reflective of Yahoo's reality now, when it was unimaginably unrealistic in June: Microsoft offered $1 billion for Yahoo's search business, which was so lowball no sensible board of directors would accept it. But with Yahoo shares treading water in a toilet with hand on the lever ready to flush, $1 billion for search should be more appealing. Problem: There's no way Microsoft would reasonably go forward with the rest of the proposed deal—$8 billion investment at 35 bucks a share.
Whatever Steve's intentions, his comments undoubtedly contributed to Yahoo's further share price declines. Suddenly, Yahoo is an even more attractive takeover target for somebody. Who would come in for the kill? Steve didn't say no deal, just that there were no discussions and that Microsoft would be "very open" to buying Yahoo's core search business.
Uncertainty is killing Yahoo. Steve's statements add to the uncertainty, rather than definitively taking Microsoft out of play. The benefit to Microsoft: The lower Yahoo's stock goes the better deal Microsoft can get later on, whether it's just pieces or the whole shebang.
A big acquisition, even for only part of Yahoo, would be tough for most companies to justify during tough economic times. But Yahoo would be a long-term investment for Microsoft. Yesterday, Steve told shareholders that Microsoft isn't immune to slowing global economies, but that company would invest in the future, such as keeping up research and development. "We're taking that long-term approach," he said. "That's what we've always done at Microsoft, and I think it's the single-most important reason for the success we've had over the years."
Related Posts:
- Yahoo: Should Microsoft Rebid or Walk Away, Microsoft Watch, Nov. 18, 2008
- Yahoo's Yang Steps Down, Leaving Microsoft, Google to Gobble Share, Google Watch, Nov. 17, 2008
- The Google Monopoly Expands, Microsoft Watch, Nov. 11, 2008
- What the Economic Crisis Means to Microsoft, Microsoft Watch, Oct. 26, 2008
- Should Microsoft Buy Yahoo Now?, Microsoft Watch, Oct. 10, 2008
- Why Microsoft Walked Away from Yahoo, Microsoft Watch, July 24, 2008
- Yahoo's Response to Carl Icahn, Microsoft Watch, July 7, 2008
- With or Without Yahoo, Microsoft Watch, June 25, 2008
- Don't Yell 'Yahoo' So Fast, Microsoft Watch, June 25, 2008
- Microsoft and the Yahoo Lobotomy, Microsoft Watch, May 19, 2008
- Icahn Yahoo Better than You, Microsoft Watch, May 15, 2008
- Yahoo: Between a Rock and a Hard Place, Microsoft Watch, May 8, 2008
- Why Didn't Microsoft Yell 'Yahoo'?, Microsoft Watch, May 5, 2008
- Microsoft Boo-Hoos Yahoo, Microsoft Watch, May 3, 2008
- Open Letter to Steve Ballmer, Microsoft Watch, May 1, 2008
Comments (9)
Ballmer admits to wanting a search-only partnership, and would probably be open to a search-only acquisition.
As for acquiring all of Yahoo, when Ballmer says No, No, No, No...I think he means it. I don't see much uncertainty there. (grin)
Posted by JohnJ | November 20, 2008 9:42 PM
Ballmer was uncharacteristically clear in answering that question. And as he indicated, it was a reiteration of the company's well established position. It also makes sense for Microsoft, which is where his obligation lies. That Yahoo plunged on this non news isn't Ballmer's fault. It just illustrates that some Yahoo shareholders still hadn't given up on receiving a takeout premium. With potential reward comes risk. Yahoo the operating company (versus Yahoo the acquisition target or asset sale play) is still trading for 22x forward earnings, while Google is selling for 17x.
Posted by Paul | November 20, 2008 11:36 PM
Who would come in for the kill? Hmm ... Yahoo! seems to be doing a great job of hanging themselves, so why not leave them alone. If MS were offering cash for the first proposed deal, I would certainly have gone for it and moved on to another job afterwards - and the shareholders who took advantage of the deal would have thought I was a magnificent CEO.
Posted by MadScientist | November 21, 2008 2:04 AM
You're missing something Joe:
http://news.cnet.com/8301-13860_3-10104184-56.html
Microsoft taking away the people that really matter. Microsoft has programmers, but needs visionairies. These are the ones they'll be picking.
Posted by Charlie | November 21, 2008 2:41 AM
Just wondering ...
Since Ballmer said "no way" to a Yahoo acquisition, which obviously caused Yahoo stock to tank further, and then if he turned around and went forward with an acquisition proposal (after the price was lower),
could he be in hot water for stock maniupulation?
I'm not sure how it works, but AFAIK, it's illegal to deliberately try to make a rival's, or acquisition target's, stock go down.
And saying "no way" at first, then turning around and trying to make a purchase after subsequent stock downgrade, would be a crystal clear case of cause and effect.
But I don't know how the law works in this regard, and I'm just wondering.
Does anyone have any insight to this?
Posted by JeffS | November 21, 2008 1:17 PM
something interesting
'Vista Capable' lawyers ask: What did Ballmer know, when did he know it?
http://www.computerworld.com/index.jsp
Microsoft has asked U.S. District Court Judge Marsha Pechman to block the plaintiffs' attempt to take Ballmer's testimony. In an October filing, Ballmer claimed, "I do not have any unique knowledge of, nor did I have any unique involvement in any decisions regarding the Windows Vista Capable program."
The plaintiffs' lawyers feel otherwise. "Mr. Ballmer's connection to the Vista Capable program is not limited to a single -- albeit significant -- telephone call with Intel's CEO," their motion read. "Mr. Ballmer was an active participant before, during and after the program."
According to the motion, other meetings were scheduled between Ballmer and major Microsoft partners. Executives at the Best Buy retail chain, for example, asked that their concerns over the Express Upgrade program -- an offer that gave PC buyers free or discounted upgrades to Vista -- be bumped up "to a senior level." A meeting was later scheduled between Best Buy Vice President Ron Boire and Ballmer.
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Ballmergate??
Posted by Marco | November 21, 2008 3:19 PM
@JeffS
"it's illegal to deliberately try to make a ... stock go down"
Not in Australia at least, and we tend to follow the USA/UK in these matters. It's called "rumourtrage" and whilst regulators have speculated on outlawing the practice I'm not aware that they have - at least in the anglo-sphere. Could be different in continental europe; but most of their companies are state owned, but that's fast becoming true of the US & UK so maybe they will.
Posted by Philip Daniels | November 21, 2008 5:44 PM
I for one want Ballmer to explain why all of Yahoo @ $33 a share made sense eight months ago but not today @ 1/3 that price. If Ballmer thinks Microsoft's disjointed approach to online content and social networking is more valuable long-term for Microsoft than buying all of Yahoo, then he's applying very warped logic to reach this conclusion.
Yahoo is most importantly a content delivery company. Their search happens to have the good fortune of being at the top of yahoo.com. It's the yahoo.com that's has value, because it drives people to their search engine and sells lots of advertising $. So while I agree that Ballmer appears to be very clear about No to an acquisition, I believe he's simply trying to drive down and crush yahoo's share price before giving just cause for being open to an all out acquisition. He needs to save a little of the war chest to purchase Facebook next year.
Or put another way, he's trying to remind Yahoo and Google that M$ is still very much relevant and is the only company who can afford Yahoo, get it past the DOJ, and has a "chance" of making the acquisition work despite the land mines. In today's finanical crisis, $12B is an enormous amount of money. In fact, it's more than what everyone is saying needs to be loaned to GM, a company that's been around for 100 years, not long ago sold more cars worldwide than any other car company, and probably contributes about 1 out of every 50 jobs in the U.S.
Posted by Jay | November 21, 2008 11:01 PM
Still nobody can explain why it is that Microsoft no longer is interested in Yahoo when just months back Microsoft was showing that they were VERY desperate to aquire Yahoo. Seems that Microsoft has recently licensed the desired technology elsewhere.
Joe any clue where?
That's the question that needs to be answered!
Posted by I-Man | November 22, 2008 3:10 PM