What might have been: A look back at Microsoft/Yahoo! coverage in WinInfo

Microsoft this week made an unsolicited $44.6 billion offer to purchase ailing Internet services company Yahoo, surprising investors and tech industry onlookers. But the bigger surprise was that Microsoft also confirmed long-standing rumors that it had been trying to strike a deal with Yahoo for quite some time: In a letter to Yahoo's board of directors, which Microsoft opened to the public, CEO Steve Ballmer noted that his company had been courting a Yahoo merger or acquisition since at least 2006.

"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," Ballmer said. "We believe our combination will deliver superior value to our respective shareholders and better choice and innovation to our customers and industry partners."

In his letter to Yahoo, Ballmer spelled out the ways in which he felt the two company's Internet properties were compatible, noting that there were "significant benefits of scale" that would help the combined companies more effectively compete with market leader Google. (Interestingly, Ballmer never mentions Google by name in this letter, however.)

Ballmer says that Microsoft would offer "significant retention packages" to all of Yahoo's engineers, key leaders, and other employees and would work with Yahoo to best integrate the company's businesses. He also noted that Microsoft had spent considerable time and resources evaluating the transaction and is confident that it will pass regulatory muster. That said, Google's difficulties purchasing DoubleClick suggest otherwise, and it's clear that Microsoft's past antitrust issues will factor into any regulatory approval as well.

The most astonishing thing about this offer, of course, is the sheer boldness of it, coming as it does after years of much smaller acquisitions.

After years of rumors about a possible Microsoft/Yahoo buyout, merger, or partnership of some kind, the truth finally comes out: Microsoft this week offered an unsolicited $44.6 billion buyout of Yahoo, the ailing Internet search company. This is obviously a big, big deal, so I may be cutting Short Takes a bit short this week so I can spend time analyzing what's going on here. The nutshell version goes like this: As far back as 2006, Microsoft began approaching Yahoo to find out how the two companies could work together. In 2007, the Yahoo board rejected Microsoft merger and acquisition proposals, noting that Yahoo was trying to implement a comeback strategy. In an open letter to Yahoo this week, Microsoft CEO Steve Ballmer said, "a year has gone by, and the competitive situation has not improved ... 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 for consumers, advertisers, and publishers." He then highlights the various ways in which the company's online properties could be combined. Yahoo announced that it has received the letter and will consider its terms. Wow. I mean, wow. More on this soon.

Conventional wisdom has it that Microsoft is obsessed with Google, and while there's certainly some truth to that, the reverse is equally true as well. That became obvious over the weekend when Google published an ill-conceived missive on the Web about Microsoft's plan to purchase Yahoo and began openly fighting the merger of the two companies' Internet operations.

"Microsoft's hostile bid for Yahoo raises troubling questions," Google senior vice president and chief legal officer David Drummond wrote in a blog entry published Sunday. "Could Microsoft now attempt to exert the same sort of inappropriate and illegal influence over theInternet that it did with the PC? Microsoft has frequently sought to establish proprietary monopolies -- and then leverage its dominance into new, adjacent markets."

While beating the drum for behaviors of Microsoft Past is as dramatic as it is pointless, Drummond conveniently left out the part where Google is now doing the same thing: Establishing a monopoly in online search and leveraging that dominance into new, adjacent markets like display advertising,email and calendaring, and office productivity. Indeed, Google's attempt at purchasing DoubleClick and thus securing its monopoly on online advertising have come under heavy antitrust scrutiny around the world for this very reason, though the US Department of Justice cleared the purchase late last year.

Google's offensive against Microsoft isn't limited to bizarre blog posts: The company has contacted both Yahoo (a direct competitor) and potential Yahoo suitors like AOL to see how it can help thwart the purchase. And Google's lobbyists are gearing up for an epic showdown in Washington by courting lawmakers and regulators to ensure that the Microsoft bid for Yahoo is at the very least slowed down.

Yahoo CEO and co-founder Jerry Yang emailed the company's 14,000 employees yesterday and assured them that Yahoo's executive staff was doing everything it could to avoid a takeover by Microsoft. Less than a week ago, Microsoft made a $44.6 billion hostile takeover bid for Yahoo, which has been struggling in recent years against Internet giant Google.

"Our board is thoughtfully evaluating a wide range of potential strategic alternatives in what is a complex and evolving landscape," Yang's email reads. "What's become clear in the past few days is how much people care about this company. I've heard from many of you, and from other friends and colleagues from around Silicon Valley and across the globe, that we need to do what's best for Yahoo and our shareholders."

Industry reaction to the proposed purchase has been mixed, though most feel it would be healthy for Google to have at least a single healthy competitor. Currently, the company dominates online in the most important markets, search and advertising. Google, somewhat transparently, is attempting to scuttle the deal or at least delay it.

According to reports, Yahoo's board of directors will hold a special meeting today to discuss Microsoft's hostile $44.6 billion offer for the company. While it's unlikely that Yahoo will simply decide to accept or reject the offer this quickly, it does appear that things are moving along. In related news, there's a theory floating around that Microsoft's surprise bid was actually designed to prevent online retailer Amazon.com from merging with Yahoo, and that Microsoft knew that Yahoo would reject its bid but that the announcement of the bid would drive up Yahoo's worth, making the merger untenable for Amazon. I'm not sure I buy that: Microsoft will look ridiculous if it has to back and make a run with its Live services stuff after a Yahoo deal is shot down. My guess is that Microsoft is serious about the Yahoo bid.

Many people are looking at Microsoft's blockbuster $44.6 billion offer for Yahoo as tacit admission that its online efforts have failed. While that's certainly partially true, I think there's more going on here. I mean, look at it this way: At least the company is trying to right the ship. After years of bulking up its flagship traditional products rather than coming out with truly exciting online offerings that, yes, may very well eat in Windows and Office, Microsoft's bid for Yahoo shows that the venerable software giant is still willing to take huge chances. Remember, this is a company that drags out the phrase "bet the company" every time it releases a minor software update. By taking such a huge financial risk this time, however, Microsoft shows that it's not in the grave yet and is serious about making big changes. The proof, of course, will be in the execution. But I think they deserve a bit of credit for making a bold

As expected, Yahoo's board of directors formally rejected Microsoft's buyout attempt for the company, arguing that Yahoo was worth more than the $44.6 billion offered. The Yahoo board met Saturday to discuss the deal, and issued a letter to the software giant Monday. Microsoft has yet to comment on the contents of that letter, which were leaked over the weekend.

But Yahoo is also risking a shareholder revolt by slowing Microsoft's purchase of the company. Stung by years of losses, many of Yahoo's shareholders would like to cash in on the heightenedvaluation of the company that has occurred in the wake of Microsoft's offer. Yahoo's shareholders lost $20 billion in just the previous three months.

Now what? With Yahoo!'s board of directors universally rejecting Microsoft's mammoth $44.6 billion bid for the company, both Yahoo! and Microsoft await an uncertain future. For Yahoo!, it's pretty clear that no potential partnerships have come close to competing with the Microsoft deal, which should anger shareholders who were hoping to see the past year's losses reversed. Microsoft, meanwhile, could convince Yahoo! shareholders to oust its board and put a friendlier group in charge of the company, but that move would lead to the mass exodus of the Yahoo! engineers that Microsoft needs to badly.

It's a classic damned-if-you-do, damned-if-you-don't stalemate. As a reasonable middle ground, Microsoft could raise its bid for Yahoo! and hope the Yahoo! board accepts a second offer. But with Yahoo! seemingly convinced that it is worth far more than the $44.6 billion Microsoft has already offered, and Microsoft reiterating its claims that the original bid was both "full and fair," it's not clear that the companies will ever agree.

Further complicating matters for both companies is that their online futures are quite cloudy without each other. Yahoo! has been losing market share for years, and its stock price is in the dumper: As soon as today, the company will lay off 1000 employees, or about 7 percent of its workforce. Microsoft's online unit is the sole part of the company that's not raking in money on a quarterly basis; in fact, it's arguably dragging the rest of the company down. Although critics have compared the merger of Microsoft and Yahoo! as the combination of two losers that still wouldn't compete effectively with market leader Google, it's clear they're better off with each other than they are without.

The question now is, who blinks first? Will Microsoft make Yahoo! an offer it can't refuse? Or will Yahoo! shareholders take matters into their own hands and demand a sale?

Yahoo!'s second-biggest shareholder urged Microsoft to raise its bid for the company this week, just days after Yahoo!'s board of directors rejected the software giant's $44.6 billion buyout offer.  Bill Miller, an asset manager at Legg Mason, said Yahoo! was worth about $40 a share, compared with the $31 per share Microsoft offered about 10 days ago.

"It will be hard for [Yahoo!] to come up with alternatives that deliver more value than [Microsoft] will ultimately be willing today ," he wrote in a letter to investors. "We think this deal is a strategic imperative for [Microsoft] and that [Yahoo!] is in a tough spot if it wishes to remain independent. [Microsoft] will need to enhance its offer if it wants to complete a deal."

Institutional shareholders like Legg Mason own about 75 percent of Yahoo!'s stock and are believed to overwhelmingly support Microsoft's bid for Yahoo!, largely because of the way Yahoo!'s stock has declined in the past year. Yahoo! stock was trading at a four-year low when Microsoft made its offer.

In a letter to shareholders this week, Yahoo! CEO Jerry Yang urged patience and said that Yahoo! would seek to remain independent. The letter is just the latest in a long string of daily updates that have occurred in the wake of Microsoft's $44.6 billion takeover offer for Yahoo!. I'm sure it won't be the last.

"I wanted to reach out to you personally to let you know why your Board of Directors, after a careful review by Yahoo!'s management along with our financial and legal advisors, believes that Microsoft's proposal substantially undervalues Yahoo! and is not in the best interests of our stockholders," Yang wrote. "Your Board is continuously evaluating all of Yahoo!'s strategic options in the context of the rapidly evolving industry environment, and we remain committed to pursuing initiatives that maximize value for all our stockholders." (Side note: Yang uses capital letters in his letter to shareholders, a formality he doesn't observe in letters to Yahoo! employees.)

Yang spelled out what he sees as Yahoo!'s "combination of strengths": its recognizable and admired brand, it's popularity with PC and mobile users, its strength in advertising, its healthy $2 billion cash balance, various infrastructure assets, and its investments overseas. "These assets are the core of our value and our leadership position in the industry," he wrote. "We have a huge market opportunity - and are uniquely positioned to capitalize on it."

Microsoft this week announced a number of internal promotions and executive exoduses (exodi?) in its Windows and online groups in what is clearly a presage of its impending deal with Yahoo!. The most telling promotion is that of Satya Nadella, previously the senior vice president of Microsoft's search, portals and advertising group: It looks like he's being positioned to handle the Yahoo!/Microsoft integration. Of course, should the Yahoo! deal fall apart, Microsoft will likely move executives around once again. It seems like they do this 13 times a year anyway.

Microsoft has moved into Defcon 1 mode in its hostile takeover bid for Internet giant Yahoo!, by hiring a proxy solicitation group to help it oust Yahoo!'s board of directors. This course of action was considered a long shot when Microsoft began its pursuit of Yahoo!, but with Yahoo!'s current board voting unanimously to reject Microsoft's $44.6 billion offer for the company, the software giant apparently felt it had few other choices.

The timing of Microsoft's bid to oust Yahoo!'s board isn't coincidental: The entire Yahoo! board is up for reelection in March, so Microsoft could conceivably entice enough of Yahoo!'s biggest shareholders to eject the board members and elect a board that would accept Microsoft's original takeover offer.

While doing this is risky--overthrowing the Yahoo! board could cause key Yahoo! engineers and executives to flee the company--it's also dramatically less expensive than raising its buyout offer. Analysts say Microsoft will likely spend $20 million to $30 million on this effort, compared with the $1.4 billion it would need to spend each time it raised its buyout offer by $1 a share.

I guess they were hoping Microsoft would just roll over and play dead. Google cofounder Sergey Brin this week said that Microsoft's takeover bid for Yahoo! was "unnerving" because the company has a history of stifling innovation. "When you start to have companies that control the operating system, control the browsers, they really tie up the top websites, and can be used to manipulate stuff in various ways," he said, apparently in mock innocence. Sorry, but it's hard to imagine a legitimate complaint coming out of Google on this one. If anything, a combination of Microsoft and Yahoo! would be an important blocker to the really dominant player on the Web. Which is Google, by the way.

In an internal memo to his employees in the Platforms & Services Division, Microsoft president Kevin Johnson provided an update on the software giant's bid to purchase Yahoo. Johnson's message comes in the midst of uncertainty around the deal: Yahoo has officially rejected Microsoft's offer, but Microsoft has made moves suggesting it will soon seek to replace the Yahoo board and enter a more aggressive phase of attack.

"While Yahoo! has issued a press release rejecting our proposal, we continue to believe we have a full and fair proposal on the table," he wrote in the memo, which was delivered to employees Friday afternoon. "We look forward to a constructive dialogue with Yahoo!'s Board, management, shareholders, and employees on the value of this combination and its strategic and financial merits."

According to Johnson, the Yahoo deal should be completed by the end of 2008 pending regulatory approval. Until that time, he said, Microsoft would need to operate its business as usual.

Microsoft's $44.6 billion hostile takeover bid has damaged its business, Yahoo! says in its annual report. Dealing with the bid, which the company's board initially rejected, has distracted its board of directors, made it difficult to retain key employees, stirred up shareholders, and scared away potential advertisers. Meanwhile, the company faces seven shareholder lawsuits, all of which claim that Yahoo! harmed shareholders by not accepting Microsoft's takeover bid.

"Microsoft's unsolicited acquisition proposal has created a distraction for our management and uncertainty that may adversely affect our business," the report reads, while outlining best and worst-case scenarios. In a best-case scenario, the Microsoft bid has distracted Yahoo!'s executives, requiring them to expend considerable time and effort evaluating Microsoft's bid as well as rival offers and other alternatives. Worst case, the bid will lead to an employee exodus and cause advertisers to abandon the company.

Yahoo! on Wednesday postponed the deadline for nominating new board members, a move the company hopes will at least delay Microsoft's hostile takeover bid. Microsoft had previously said it would use the nomination process, set for mid-March, to replace Yahoo!'s board with one that is more amenable to the software giant's $44.6 billion takeover offer.

"Yahoo!'s board of directors remains committed to pursuing initiatives that maximize value for Yahoo!'s stockholders," a Yahoo! statement issued Wednesday reads. "To the extent that the extension of the nomination deadline has the effect of postponing the nomination of one or more directors by any party, it will allow Yahoo!'s board to continue to explore all of its strategic alternatives for maximizing value for stockholders without the distraction of a proxy contest."

You'll be shocked and amused to discover that Microsoft chairman Bill Gates is no longer the world's richest man. The reason? Apparently, Microsoft's attempted takeover of Yahoo! has so adversely affected Microsoft's stock price that Gates' fortune fell just enough to drop him from the top spot, the first time he hasn't been there in 13 years.

After considering linking his MySpace Web service to Yahoo!'s various Web properties, News Corp. CEO Rupert Murdoh said Monday that it cannot compete withMicrosoft's $44.6 billion hostile takeover offer for Yahoo!. Murdoch never seriously considered buying Yahoo! outright, as Microsoft has offered, but instead trying to work a combination of the companies that would be strong enough to satisfy Yahoo! shareholders. Apparently, that's just not feasible.

"We're not going to get into a fight with Microsoft, which has a lot more money than us," Murdoch told investors a media conference Monday.

After a month and a half of dancing around each other, representatives from Microsoft and Yahoo! actually sat down in the same room for the first time this week in a secretive meeting during which Microsoft explained how it would merge the two companies. Microsoft, of course, has made a $44.6 billion hostile takeover bid for Yahoo!. And Yahoo!, of course, has done everything in its power to ignore that bid in the hopes, apparently, that Microsoft will simply forget about it and move on to other things. It's unclear how the meeting went, but we know that it was purely about "vision"--i.e. how the online components of Microsoft and Yahoo! would be melded together if the proposed purchase occurred--and not about legal and financial issues. If there's one thing I've learned over the years it's that communication goes a long way towards understanding: My guess is that Microsoft made more progress with Yahoo! during this one meeting than they did during the entire month and a half that proceeded it.

Internet search giant Google has escalated its war of words against Microsoft's $44.6 billion takeover bid of Yahoo!, noting that the software giant's history suggested the purchase would be "bad for the Internet." Google CEO Eric Schmidt has been a vocal opponent of Yahoo!'s sale to Microsoft and he restated his worries during a news conference Monday morning in China.

"We would be concerned by any kind of acquisition of Yahoo! by Microsoft," Schmidt said. "We would hope that anything they did would be consistent with the openness of theInternet, but I doubt it would be."

No one was asking, but Yahoo! took it upon themselves to offer a financial outlook for the next three years, apparently in a bid to prove that Microsoft's $44.6 billion offer for the company is too low, as they've claimed. The way they formulate this argument is particularly humorous, however. For the rest of 2008, Yahoo! says that it will experience just modest growth, in line with what analysts have predicted. For 2009 and 2010, Yahoo! says that it will magically experience a 70 percent boost in revenues, well above even the rosiest of analyst expectations. And what will drive this growth, you ask, you budding financial genius, you? Well, that's more information than Yahoo! is prepared to provide. You just gotta believe, son. And I do. Yes, I really do. I believe that we've just been fed a bunch of horse pucky. I believe that Yahoo! is finally coming to terms with the inevitable. And I believe that this week's dog and pony show is simply a last ditch effort to wring every possible penny they can out of Microsoft. I most certainly don't begrudge them that opportunity. But it's let's just see this for what it is, shall we?

According to anonymous sources close to Microsoft and cited by "The Wall Street Journal," the software giant isn't considering a higher bid for Internet search portal Yahoo!. Instead, Microsoft is biding its time, convinced that Yahoo! will run out of viable options and realize that a merger is inevitable.

Part of the psychology of the bidding process is that no alternative bids have emerged, so Microsoft sees no reason to raise its price, which would essentially see the company bidding against itself. Yahoo! has investigated a number ofpartnership and merger alternatives, but no viable options have emerged. A recent Yahoo! road show, aimed at getting investors excited about the future financial possibilities of the company, has fallen flat. Few believe that Yahoo! can independently improve its fortunes in the way the company describes.

After waiting over two months for Yahoo!'s board of directors to get its act together, Microsoft has finally lost patience. The software giant over the weekend threatened that it would bring its takeover bid directly to Yahoo!'s shareholders and initiate a proxy contest to elect an alternative slate of directors for the Yahoo! board.

"The pace of the last two months has been anything but speedy," Microsoft CEO Steve Ballmer wrote in an open letter to Yahoo!'s board. "It has now been more than two months since we made our proposal to acquire Yahoo! at a 62% premium ... Our goal in making such a generous offer was to create the basis for a speedy and ultimately friendly transaction."

Yahoo!, of course, has spent most of the past two months seeking an alternative to Microsoft's offering. None came.

In a surprising development, Microsoft and News Corp. are holding talks to discuss a combined offer for Yahoo!, according to separate reports in "The New York Times" and "The Wall Street Journal." The combination would join Microsoft's MSN and Live properties, News Corp's MySpace, and Yahoo! into an Internet giant that could more effectively compete with Google.

But that's where things get complicated: Yahoo! has renewed talks with Time Warner's AOL unit in a last-ditch bid to stave off Microsoft's advances. The two companies are now discussing a more lucrative deal in which AOL would be made part of Yahoo!, Time Warner would purchase 20 percent of Yahoo! at a higher stock price than that offered by Microsoft, and Yahoo! would outsource its search ad sales to Google.

A largely irreverent look at some of the week's other Microsoft-Yahoo! news. I wish there was more going on. But there isn't...

Every once in a while, a Microsoft-related story grabs the headlines and then holds on for dear life. The most obvious examples are the company's two major antitrust dramas, first in the US and then with the EU, but this year's Yahoo! debacle is turning into a serious contender, especially now that things are really heating up. In fact, it's getting hard to figure out what else is going on right now, since you have to wade through all the Yahoo! baloney to even find out whether there even is anything else going on. With that in mind, a quick recap of the week's events. My hope is that this event will be concluded sometime soon so we can get on with life.

While a combined Microsoft/News Corp. deal for struggling Internet giant Yahoo! is still a possibility, both companies are allegedly more interested in doing a deal without the other. Microsoft would prefer to see its original $44.6 billion takeover bid for Yahoo! come to fruition, leaving News Corp. and its MySpace online community in the lurch. Meanwhile, News Corp. is still speaking to Yahoo! on the side about a potential merger of Internet services, in a deal that would leave Microsoft out in the cold.

Yahoo!'s board of directors met Friday to assess the increasingly complex set of options facing the company. Predictably, no decision was reached.

While in Europe this week, Microsoft CEO Steve Ballmer said that he would walk away from his proposed merger with Yahoo! if the deal didn't make sense.

Asked about Microsoft's hostile takeover attempt of Yahoo!, Ballmer said that he wouldn't raise his bid for the company past the $44.6 billion already on the table. "It's a very good price [for Yahoo!]," he said, adding for the first time that Microsoft was also planning for future in which the Yahoo! deal fell apart. "I hope that it works, but if it doesn't we go forward alone."

During a conference call about its quarterly earnings, Microsoft again said that it saw no reason to raise its hostile takeover bid for struggling online giant Yahoo!. In fact, Microsoft issued what amounted as a threat to Yahoo!'s board of directors, noting that "time is of the essence." This is a reference to the fact that Microsoft can begin trying to replace Yahoo!'s board with one that is more amenable to a merger starting this weekend. But Microsoft CFO Chris Liddell also outlined another possibility: Microsoft could simply withdraw its $44.6 billion offer for Yahoo! and leave the company to die a natural death on its own. He said Microsoft could elaborate on "alternative" plans next week if that was the decision. I have to say I derive a guilty kind of fun from watching corporate giants threaten each other. I hope this one goes down to the wire.

The time for Microsoft CEO Steve Ballmer to make good on his threats has come. Ballmer previously informed Yahoo! that he would seek to oust its board of directors and replace them with one more amenable to Microsoft's $44.6 hostile takeover offer if the company didn't accept its demands by this past weekend. However, the weekend came and went without any action from either side.

What Ballmer now faces is arguably the most important decision of his tenure at the helm of the software giant: Should he blitzkrieg Yahoo!'s board or should he sheepishly retreat with the excuse that Microsoft is prepared to enter an uncertain future without Yahoo!'s resources?

According to yet another unsourced story in "The Wall Street Journal," a Microsoft decision on Yahoo! is "imminent" and could occur as early as today. And in related news, recently revealed court documents show that Microsoft would set aside at least $1.5 billion to retain key Yahoo! employees should the purchase be consummated.

Microsoft CEO Steve Ballmer will allegedly pull the trigger on his company's hostile takeover bid for Yahoo! as soon as today. Or he won't. Those, as we say in the business, are the two choices he could make. Excited? I know I am. But seriously, folks. How many days of non-news news can one take? This week has been a monotonous series of "will they or won't they" articles from press both mainstream and tech-oriented, with no apparent end in sight. So with my sanity hanging in the balance, Mr. Ballmer, I'm begging you: Just do something. My advice is to walk away. But if you just have to spend that $44.6 billion or whatever, do it. Just do it today. Please?

In a surprise eleventh-hour development, Microsoft on Friday raised its takeover bid for Internet giant Yahoo! by an undisclosed amount, at which time the two companies actively began discussing a merger. Sources close to the negotiations say, however, that the chances of the two companies coming to agreeable terms are still "50-50."

While the amount of Microsoft's new bid is current unknown, it is most certainly higher than $33 a share, the worth of Microsoft's original bid, and at or below $37 a share, the price Yahoo! was reportedly seeking.

This weekend, Microsoft abruptly ended its takeover bid for ailing online giant Yahoo! after failing to come to terms on the value of the transaction. In a letter to Yahoo! CEO Jerry Yang, Microsoft CEO Steve Ballmer raised his company's bid for Yahoo! by $5 billion to $33 a share. But Yang said that Yahoo! could not accept less than $37 a share. So Ballmer yanked the offer, leaving Yahoo! to fend for itself, both with competitors and with its increasingly agitated shareholders, many of whom eagerly sought a Microsoft merger.