Yahoo Boo-Hoos Ballmer

Yahoo CEO Jerry Yang and Chairman of the Board Roy Bostock responded to Microsoft CEO "Steve" Ballmer in a letter made public today. They addressed Ballmer by first name. (Is that a Silicon Valley cultural thing or are they mocking him?) Yang's letter comes as result of Ballmer's threatening letter of April 5. Boy, boys, you really should get out of the office more.

The public bickering means that negotiations are going nowhere. It's absolute rule of acquisitions or legal negotiations: Silence is golden. Nobody talking is a sign of progress. Leaks—or in this case, full public disclosure of an internal letter sent by Microsoft—mean talks are scuttled or somebody wants to scuttle them. Here, talks don't appear to be progressing. Both letters shift the blame to the other company, which is a tactic for wooing shareholders, but it also abdicates blame should there be no merger.

Questions remain about Microsoft's sincerity and whether or not the hostile takeover is more competition by acquisition, particularly as the merger goes nowhere.

Microsoft execs talk lots about increased transparency. Ballmer's letter is clearly designed for PR benefit. While addressed to Yahoo's board, the letter is really meant for shareholders and instilling fear, uncertainty and doubt in them. The approach is very consistent with the interoperability-by-PR and security-by-PR tactics I previously blogged about.

Yahoo's letter also seeks some PR gains, but with greater subtlety and by using transparency as a club to beat down Ballmer. Corporate infighting doesn't get much better than this. It's ringside seating, and the wrestlers are ready to brawl.

Ballmer wrote:

"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. While there has been some limited interaction between management of our two companies, there has been no meaningful negotiation to conclude an agreement ... we've seen no indication that you have authorized Yahoo management to negotiate with Microsoft."

Yang and Bostock responded:

"We regret to say that your letter mischaracterizes the nature of our discussions with you. We have had constructive conversations together regarding a variety of topics, including integration and regulatory issues. Your comment that we have refused to enter into negotiations to conclude an agreement are particularly curious given ... your suggestions in your letter and the media that you are considering lowering the value of your proposal. Moreover, Steve, you personally attended two of these meetings and could have advanced discussions in any way you saw fit."

The last sentence of the paragraph is the kicker! Yang reveals Ballmer's meeting participation, which insinuates high-level discussions and pushes responsibility back to Microsoft's CEO. Yang called Ballmer's bluff.

The Yahoo letter also pushes back against Microsoft's sincerity to reach an amiable agreement. 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."

That's a threat. Yahoo must agree to Microsoft terms, or suffer the consequences. A shareholder battle or proxy fight would engulf Yahoo in a cloud of uncertainty that could lower the company's perceived value and further reduce the share price. The tactic could also drive down the share price, for which Microsoft could make a case to reduce its offer.

Yahoo's response: "We consider your threat to commence an unsolicited offer and proxy contest to displace our independent Board members to be counterproductive and inconsistent with your stated objective of a friendly transaction." Microsoft can't wear the hats of negotiator and bully at the same time.

My questioning of sincerity doesn't stop with Microsoft. I'm not convinced that Yahoo's board would take a higher offer. Whether or not, Yahoo's letter expresses willingness, if Microsoft would go far enough:

"Our Board's view of your proposal has not changed. We continue to believe that your proposal is not in the best interests of Yahoo! and our stockholders ... Please allow us to restate our position, so there can be no confusion. We are open to all alternatives that maximize stockholder value."

The pushback could as easily be a stalling tactic as sincere willingness to accept an offer. That Microsoft publicly issued a letter to Yahoo's board is a pretty strong indication that the sides are nowhere near agreement. Yang's position is simple: Microsoft hasn't offered enough. Show him the money. My question: Would he and the board really take it?

Yang's statements about antitrust considerations are perplexing:

"As to antitrust, we have discussed with you our concerns. Any transaction between us would result in a thorough regulatory review in multiple jurisdictions. As a follow up to a recent meeting among our respective legal advisors we had on this topic, and at your request, we provided to you on March 28 a list of additional information we would need to further our understanding of the regulatory issues associated with any transaction. To date, you have still not provided any of the requested information."

I'm no lawyer, but I've covered Microsoft antitrust cases for more than a decade. There's a presumption that Google's search dominance would remove any antitrust hurdles. I'm not convinced. Microsoft has embarked on aggressive Windows Vista + Windows Live marketing and product integration strategies. The U.S. antitrust case filed in 1998 accused Microsoft of abusing a monopoly in one market to gain unfair advantage in another one. Somebody could make a similar argument here, and that's without factoring in the tremendous overlap between Microsoft and Yahoo in areas such as hosted e-mail, instant messaging and small business services, among many others. Suddenly, the context will adversely change for all those hundreds of millions of Live users that Microsoft executives frequently tout.

The Yang and Bostock letter hits the right tone, of insinuating that Yahoo is being thoughtful and responsible while Microsoft is pushy and mischaracterizes the facts. Microsoft's letter has the stronger PR spin, simply because the company initiated the public discussion. Yahoo's response is more craftily written, regardless of its sincerity, with less obvious PR spin even though both letters share that same objective.

Yahoo's letter may be addressed to "Steve," but like Ballmer's letter there is another audience: Yahoo shareholders. The Yahoo letter refers to "stockholder" or "stockholders" 13 times, usually in the context of returning "value."

Diplomatic discussions have failed. Now the leaders are making their case to the people, asking who do they want to be their rulers, Microsoft or Yahoo?

Related Posts:

• Ballmer's Yahoo FUD Letter, Microsoft Watch, April 6, 2008
• Ballmer Boo-Hoos Yahoo, Microsoft Watch, April 6, 2008
• What 2007 Ad Spending Means to Microhoo, Microsoft Watch, March 26, 2008
• Microsoft Search Retreat Continues, Microsoft Watch, March 19, 2006
• Microsoft's Faulty Math, Microsoft Watch, Feb. 25, 2008
• Microsoft's IBM Moment, Microsoft Watch, Feb. 20, 2008
• Yahoo: Take the News Corp. Deal, Google Watch, Feb. 13, 2008
• Microsoft's One Yahoo Mind Divided, Microsoft Watch, Feb. 12, 2008
• Yahoo Squeaks, Microsoft Squawks, Microsoft Watch, Feb. 11, 2008
• Yahoo Bounces Bid Ball in Microsoft's Court, Google Watch, Feb. 11, 2008
• Yahoo's Way Out, Microsoft Watch, Feb. 11, 2008
• Yahoo Poised to Reject Microsoft Bid, Google Watch, Feb. 9, 2008
• The Real Reasons Microsoft Wants to Buy Yahoo, Microsoft Watch, Feb. 6, 2008
• It's No Flickr of Hope, Microsoft Watch, Feb. 4, 2008
• Yahoo Music Is a Real Problem, Microsoft Watch, Feb. 4, 2008
• Yahoo Bid Reveals Microsoft's Fatal Flaw, Microsoft Watch, Feb. 4, 2008
• Google Fires FUD Volley at Microsoft over Yahoo Bid, Google Watch, Feb. 3, 2008
• Microhoo: The Worst Deal of the Internet Age, Google Watch, Feb. 2, 2008
• Is Yahoo Worth the Risk?, Microsoft Watch, Feb. 1, 2008
• How a Yahoo Merger Could Screw Up Microsoft, Microsoft Watch, Feb. 1, 2008
• There's No Must in Microsoft's Yahoo Bid, Microsoft Watch, Feb. 1, 2008
• Why Did Microsoft Yell Yahoo Today?, Microsoft Watch, Feb. 1, 2008
• Will Microsoft Yell Yahoo?, Microsoft Watch, May 4, 2007