Microsoft dumped its offer to buy Yahoo on Saturday. A closer reading of Microsoft CEO Steve Ballmer’s letter to Yahoo’s Jerry Yang shows Microsoft is content to do nothing less than choke the air supply out of Yahoo’s trachea.
Consider these sweet bon mots in Ballmer’s letter, which is also a thinly veiled salvo at Google:
We regard with particular concern your apparent planning to respond to a “hostile” bid by pursuing a new arrangement that would involve or lead to the outsourcing to Google of key paid Internet search terms offered by Yahoo! today. In our view, such an arrangement with the dominant search provider would make an acquisition of Yahoo! undesirable to us for a number of reasons:
– First, it would fundamentally undermine Yahoo!’s own strategy and long-term viability by encouraging advertisers to use Google as opposed to your Panama paid search system. This would also fragment your search advertising and display advertising strategies and the ecosystem surrounding them.
This would undermine the reliance on your display advertising business to fuel future growth.
– Given this, it would impair Yahoo’s ability to retain the talented engineers working on advertising systems that are important to our interest in a combination of our companies.
– In addition, it would raise a host of regulatory and legal problems that no acquirer, including Microsoft, would want to inherit. Among other things, this would consolidate market share with the already-dominant paid search provider in a manner that would reduce competition and choice in the marketplace.
– This would also effectively enable Google to set the prices for key search terms on both their and your search platforms and, in the process, raise prices charged to advertisers on Yahoo. In addition to whatever resulting legal problems, this seems unwise from a business perspective unless in fact one simply wishes to use this as a vehicle to exit the paid search business in favor of Google.
– It could foreclose any chance of a combination with any other search provider that is not already relying on Google’s search services.
Accordingly, your apparent plan to pursue such an arrangement in the event of a proxy contest or exchange offer leads me to the firm decision not to pursue such a path. Instead, I hereby formally withdraw Microsoft’s proposal to acquire Yahoo!.
We are eagerly awaiting Google’s response.
Meanwhile, Global Equities Research analyst Trip Chowdhry advances speculation — based on discussions with his industry contacts and applying game theory to his analysis — that Ballmer has masterfully played his hand to block Yahoo from a merger with Amazon.com.
Chowdhry thinks that Microsoft’s deal to buy Yahoo would likely be blocked by the Department of Justice, given its experience in 1995 with a deal to buy Quicken software-maker Intuit, when the DOJ did just that. At the time, Microsoft Money was the fourth biggest player.
Chowdhry: Yahoo’s management should make sure it does not fall into the trap of a potentially fake bid, as Microsoft itself probably may be knowing that the chances of a deal going through is unlikely, and the outcome could be similar to 1995, when DOJ blocked Microsoft’s acquisition of Intuit. We think Yahoo should hire Game Theorists to get insight into Microsoft’s both tactical as well as strategic moves.
(Photo: Reuters)
Google’s second quarter earnings disappointed Wall Street yesterday and sent its shares tumbling. The search giant blamed lower returns from managing its huge cash piles but analysts are also concerned the market leader in search advertising might augur a wider slowdown in online advertising.
