Microsoft Abandons Yahoo Bid The Microsoft and Yahoo deal is off. Software giant Microsoft has dropped its three-month-old bid to buy Internet firm Yahoo because the two sides cannot agree on an acceptable sale price.

Microsoft Abandons Yahoo Bid

Microsoft Abandons Yahoo Bid

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The Microsoft and Yahoo deal is off. Software giant Microsoft has dropped its three-month-old bid to buy Internet firm Yahoo because the two sides cannot agree on an acceptable sale price.

LIANE HANSEN, host:

From NPR News, this is WEEKEND EDITION. I'm Liane Hansen.

The Microsoft-Yahoo deal is off. Late yesterday Microsoft withdrew its bid for Yahoo. The main sticking point, not surprisingly, was money. NPR's Wendy Kaufman has the story from Seattle.

WENDY KAUFMAN: In the end, $5 billion on a roughly $45 billion deal separated the two sides. The chief executives of Yahoo and Microsoft met for about two hours Saturday morning but neither would budge from positions put forth earlier in the week. About 4:00 Seattle time, Microsoft's Steve Ballmer telephoned Yahoo's Jerry Yang and told him Microsoft was walking away.

In a letter that echoed the conversation, Ballmer said, "After careful consideration, we believe the economics demanded by Yahoo do not make sense for us." Ballmer also indicated that Microsoft would not launch a hostile takeover attempt, something he had threatened to do earlier.

Microsoft made its original bid for Yahoo in late January. The $31 share offer represented a sizeable premium over Yahoo stock price at the time. As Silicon Valley technology analyst Rob Enderly explains, Microsoft's strategy was to bid high, thinking Yahoo would have to say yes.

Mr. ROB ENDERLY (Technology Analyst): Microsoft's strategy was to overbid for the company so they could close the deal quickly. So, it was like anything else, if you were going to buy a house and you wanted to close quickly and move in, so you bid 20 percent over, and then the seller comes in and says, yeah, it's not good. I want you to bid 25 percent over. And so you come up to 22. And they're still saying 25 is really the number we're looking for, at some point you have to say, we're already overbidding for this thing.

KAUFMAN: Yahoo, of course, saw it very differently. In a statement issued last night, the Internet company said in part from the beginning of this process our independent board and our management have been steadfast in our belief that Microsoft's offer undervalued the company. So, why exactly did Microsoft want Yahoo in the first place?

The short answer is to compete with Internet rival Google. As Carston Vida(ph) of the technology research firm IDC explains, Microsoft's core businesses aren't growing very fast anymore.

Mr. CARSTON VIDA (IDC): They're looking for other sectors that are going faster and where there's a lot of money to be made, and Internet advertising is such a sector. It's very, very lucrative, very big, it grows very fast.

KAUFMAN: For the past few years advertisers have been moving away from broadcast and print ads and into online advertising. Though Google is the largest seller of those ads, Yahoo sells lots of them on its Web site. Microsoft had hoped that by teaming up with Yahoo it would become a formidable competitor.

But now with Yahoo out of the picture, Microsoft is likely to search out other advertising partners. In recent weeks Microsoft has had conversation with Time Warner's AOL and with News Corp. Those talks and others are likely to intensify during the next few weeks. And what about Yahoo? Here's analyst Rob Enderly's view.

Mr. ENDERLY: The stockholders had not had a great deal of faith and confidence in their current strategy and the shares are trading very low, which is why Microsoft was able to come up with a bid that was substantially over market in the first place. And at the end of the day they're still going to have to come up with something. Now they got a bunch of incredibly upset shareholders. They've got a president looks like he's fumbled the ball and a board that may have assisted him. It' not going to be a happy week for them.

KAUFMAN: But Yahoo is working on deals of its own. It will reportedly announce an advertising partnership with Google in the next few days. Still, Yahoo's stock may well plunge now that Microsoft has withdrawn its bid. Some Yahoo shareholders have already sued the company for not taking the deal. More suits seem likely.

On the other hand there are a number of people who think a Microsoft-Yahoo combination wouldn't have worked. Any big merger is challenging and this one could have been especially tough. Two very different cultures - Microsoft with lots of engineers; Yahoo with lots of media types. The companies don't use the same software and many Yahoo employees didn't like the idea of a Microsoft takeover in the first place.

Wendy Kaufman, NPR News, Seattle.

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