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Dealipedia - Microsoft Corp acquires Yahoo

Microsoft Corp acquires Yahoo for $44.6 billion

Deal Participants:
Acquiring Company: Microsoft Corp View Profile Add Homepage Google Search
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Target Company: Yahoo View Profile Charts Homepage
Deal Financials:
Price: $44.6 billion
 
Date:
Announced: Feb 01, 2008

PRESS RELEASE

Microsoft Proposes Acquisition of Yahoo! for $31 per Share



Transaction valued at approximately $44.6 billion in cash and stock;
Provides 62 percent premium to current trading price for Yahoo!
shareholders;
Combined entity to create a more competitive company while providing
superior value to shareholders and better choice and innovation for
customers and partners

REDMOND, Wash., Feb. 1 /PRNewswire-FirstCall/ -- Microsoft Corp.
(Nasdaq: MSFT) today announced that it has made a proposal to the Yahoo!
Inc. (Nasdaq: YHOO) Board of Directors to acquire all the outstanding
shares of Yahoo! common stock for per share consideration of $31
representing a total equity value of approximately $44.6 billion.
Microsoft's proposal would allow the Yahoo! shareholders to elect to
receive cash or a fixed number of shares of Microsoft common stock, with
the total consideration payable to Yahoo! shareholders consisting of
one-half cash and one-half Microsoft common stock. The offer represents a
62 percent premium above the closing price of Yahoo! common stock on Jan.
31, 2008.

"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," said Steve Ballmer, chief executive officer of Microsoft.
"We believe our combination will deliver superior value to our respective
shareholders and better choice and innovation to our customers and industry
partners."

"Our lives, our businesses, and even our society have been
progressively transformed by the Web, and Yahoo! has played a pioneering
role by building compelling, high-scale services and infrastructure," said
Ray Ozzie, chief software architect at Microsoft. "The combination of these
two great teams would enable us to jointly deliver a broad range of new
experiences to our customers that neither of us would have achieved on our
own."

The online advertising market is growing at a very fast pace, from over
$40 billion in 2007 to nearly $80 billion by 2010. The resulting benefits
of scale along with the associated capital costs for advertising platform
providers make this a time of industry consolidation and convergence. Today
this market is increasingly dominated by one player. Together, Microsoft
and Yahoo! can offer a competitive choice while better fulfilling the needs
of customers and partners.

"The combined assets and strong services focus of these two companies
will enable us to achieve scale economics while reaching R&D critical mass
to deliver innovation breakthroughs," said Kevin Johnson, president of the
Platforms & Services Division of Microsoft. "The industry will be well
served by having more than one strong player, offering more value and real
choice to advertisers, publishers and consumers."

The combination will create a more efficient company with synergies in
four areas: scale economics driven by audience critical mass and increased
value for advertisers; combined engineering talent to accelerate
innovation; operational efficiencies through elimination of redundant cost;
and the ability to innovate in emerging user experiences such as video and
mobile. Microsoft believes these four areas will generate at least $1
billion in annual synergy for the combined entity.

Microsoft has developed a plan and process that will include the
employees of both companies to focus on the integration of the combined
business. Microsoft intends to offer significant retention packages to
Yahoo! engineers, key leaders and employees across all disciplines.

Microsoft believes this proposed combination would receive all
necessary regulatory approvals and expects that the proposed transaction
would be completed in the second half of calendar year 2008.

Microsoft is also committed to working closely with Yahoo! management
and its Board of Directors as they, along with Yahoo! shareholders,
evaluate this compelling proposal.


Below is the text of the letter that Microsoft sent to Yahoo!'s Board of
Directors:

January 31, 2008


Board of Directors
Yahoo! Inc.
701 First Avenue
Sunnyvale, CA 94089
Attention: Roy Bostock, Chairman
Attention: Jerry Yang, Chief Executive Officer

Dear Members of the Board:
I am writing on behalf of the Board of Directors of Microsoft to make a
proposal for a business combination of Microsoft and Yahoo!. Under our
proposal, Microsoft would acquire all of the outstanding shares of Yahoo!
common stock for per share consideration of $31 based on Microsoft's
closing share price on January 31, 2008, payable in the form of $31 in cash
or 0.9509 of a share of Microsoft common stock. Microsoft would provide
each Yahoo! shareholder with the ability to choose whether to receive the
consideration in cash or Microsoft common stock, subject to pro-ration so
that in the aggregate one-half of the Yahoo! common shares will be
exchanged for shares of Microsoft common stock and one-half of the Yahoo!
common shares will be converted into the right to receive cash. Our
proposal is not subject to any financing condition.

Our proposal represents a 62% premium above the closing price of Yahoo!
common stock of $19.18 on January 31, 2008. The implied premium for the
operating assets of the company clearly is considerably greater when
adjusted for the minority, non-controlled assets and cash. By whatever
financial measure you use - EBITDA, free cash flow, operating cash flow,
net income, or analyst target prices - this proposal represents a
compelling value realization event for your shareholders.

We believe that Microsoft common stock represents a very attractive
investment opportunity for Yahoo!'s shareholders. Microsoft has generated
revenue growth of 15%, earnings growth of 26%, and a return on equity of
35% on average for the last three years. Microsoft's share price has
generated shareholder returns of 8% during the last one year period and 28%
during the last three year period, significantly outperforming the S&P 500.
It is our view that Microsoft has significant potential upside given the
continued solid growth in our core businesses, the recent launch of Windows
Vista, and other strategic initiatives.

Microsoft's consistent belief has been that the combination of
Microsoft and Yahoo! clearly represents the best way to deliver maximum
value to our respective shareholders, as well as create a more efficient
and competitive company that would provide greater value and service to our
customers. In late 2006 and early 2007, we jointly explored a broad range
of ways in which our two companies might work together. These discussions
were based on a vision that the online businesses of Microsoft and Yahoo!
should be aligned in some way to create a more effective competitor in the
online marketplace. We discussed a number of alternatives ranging from
commercial partnerships to a merger proposal, which you rejected. While a
commercial partnership may have made sense at one time, Microsoft believes
that the only alternative now is the combination of Microsoft and Yahoo!
that we are proposing.

In February 2007, I received a letter from your Chairman indicating the
view of the Yahoo! Board that "now is not the right time from the
perspective of our shareholders to enter into discussions regarding an
acquisition transaction." According to that letter, the principal reason
for this view was the Yahoo! Board's confidence in the "potential upside"
if management successfully executed on a reformulated strategy based on
certain operational initiatives, such as Project Panama, and a significant
organizational realignment. A year has gone by, and the competitive
situation has not improved.

While online advertising growth continues, there are significant
benefits of scale in advertising platform economics, in capital costs for
search index build-out, and in research and development, making this a time
of industry consolidation and convergence. 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. Synergies of this
combination fall into four areas:

-- Scale economics: This combination enables synergies related to scale
economics of the advertising platform where today there is only one
competitor at scale. This includes synergies across both search and
non-search related advertising that will strengthen the value
proposition to both advertisers and publishers. Additionally, the
combination allows us to consolidate capital spending.
-- Expanded R&D capacity: The combined talent of our engineering
resources can be focused on R&D priorities such as a single search
index and single advertising platform. Together we can unleash new
levels of innovation, delivering enhanced user experiences,
breakthroughs in search, and new advertising platform capabilities.
Many of these breakthroughs are a function of an engineering scale that
today neither of our companies has on its own.
-- Operational efficiencies: Eliminating redundant infrastructure and
duplicative operating costs will improve the financial performance of
the combined entity.
-- Emerging user experiences: Our combined ability to focus engineering
resources that drive innovation in emerging scenarios such as video,
mobile services, online commerce, social media, and social platforms is
greatly enhanced.
We would value the opportunity to further discuss with you how to
optimize the integration of our respective businesses to create a leading
global technology company with exceptional display and search advertising
capabilities. You should also be aware that we intend to offer significant
retention packages to your engineers, key leaders and employees across all
disciplines.

We have dedicated considerable time and resources to an analysis of a
potential transaction and are confident that the combination will receive
all necessary regulatory approvals. We look forward to discussing this with
you, and both our internal legal team and outside counsel are available to
meet with your counsel at their earliest convenience.

Our proposal is subject to the negotiation of a definitive merger
agreement and our having the opportunity to conduct certain limited and
confirmatory due diligence. In addition, because a portion of the aggregate
merger consideration would consist of Microsoft common stock, we would
provide Yahoo! the opportunity to conduct appropriate limited due diligence
with respect to Microsoft. We are prepared to deliver a draft merger
agreement to you and begin discussions immediately.

In light of the significance of this proposal to your shareholders and
ours, as well as the potential for selective disclosures, our intention is
to publicly release the text of this letter tomorrow morning.

Due to the importance of these discussions and the value represented by
our proposal, we expect the Yahoo! Board to engage in a full review of our
proposal. My leadership team and I would be happy to make ourselves
available to meet with you and your Board at your earliest convenience.
Depending on the nature of your response, Microsoft reserves the right to
pursue all necessary steps to ensure that Yahoo!'s shareholders are
provided with the opportunity to realize the value inherent in our
proposal.

We believe this proposal represents a unique opportunity to create
significant value for Yahoo!'s shareholders and employees, and the combined
company will be better positioned to provide an enhanced value proposition
to users and advertisers. We hope that you and your Board share our
enthusiasm, and we look forward to a prompt and favorable reply.


Sincerely yours,

/s/ Steven A. Ballmer
Steven A. Ballmer
Chief Executive Officer
Microsoft Corporation
Microsoft will host an analyst/investor conference call at 8:30 a.m.
Eastern Time/5:30 a.m. Pacific Time to discuss today's announcement. If you
want to participate, you may do so by dialing (866) 610-1072 or (706)
634-9230 (toll/international); the conference ID number is 33470390. Please
dial in at least 20 minutes in advance of the call. Accompanying slides and
the conference call Webcast will be available at
http://www.microsoft.com/presspass. Playback of the conference call and the
webcast will be available for replay through the close of business on Feb.
5, 2008. The replay can be accessed by dialing (800) 642-1687 or (706)
645-9291 (toll/international); the conference ID number is 33470390.

About Microsoft

Founded in 1975, Microsoft (Nasdaq: MSFT) is the worldwide leader in
software, services and solutions that help people and businesses realize
their full potential.

This communication does not constitute an offer to sell or the
solicitation of an offer to buy any securities or a solicitation of any
vote or approval. In connection with the proposed transaction, Microsoft
Corp. plans to file with the SEC a registration statement on Form S-4
containing a proxy statement/prospectus and other documents regarding the
proposed transaction. The definitive proxy statement/prospectus will be
mailed to shareholders of Yahoo! Inc. INVESTORS AND SECURITY HOLDERS OF
YAHOO! INC. ARE URGED TO READ THE PROXY STATEMENT/PROSPECTUS AND OTHER
DOCUMENTS FILED WITH THE SEC CAREFULLY IN THEIR ENTIRETY WHEN THEY BECOME
AVAILABLE BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT THE
PROPOSED TRANSACTION.

Investors and security holders will be able to obtain free copies of
the registration statement and the proxy statement/prospectus (when
available) and other documents filed with the SEC by Microsoft Corp.
through the Web site maintained by the SEC at http://www.sec.gov. Free
copies of the registration statement and the proxy statement/prospectus
(when available) and other documents filed with the SEC can also be
obtained by directing a request to Investor Relations Department, Microsoft
Corp., One Microsoft Way, Redmond, Wash. 98052-6399.

Microsoft Corp. and its directors and executive officers and other
persons may be deemed to be participants in the solicitation of proxies in
respect of the proposed transaction. Information regarding Microsoft
Corp.'s directors and executive officers is available in its Annual Report
on Form 10-K for the year ended June 30, 2007, which was filed with the SEC
on Aug. 8, 2007, and its proxy statement for its 2007 annual meeting of
shareholders, which was filed with the SEC on Sept. 29, 2007. Other
information regarding the participants in the proxy solicitation and a
description of their direct and indirect interests, by security holdings or
otherwise, will be contained in the proxy statement/prospectus and other
relevant materials to be filed with the SEC when they become available.

Statements in this release that are "forward-looking statements" are
based on current expectations and assumptions that are subject to risks and
uncertainties. Actual results could differ materially because of factors
such as Microsoft Corp.'s ability to achieve the synergies and value
creation contemplated by the proposed transaction, Microsoft Corp.'s
ability to promptly and effectively integrate the businesses of Yahoo! Inc.
and Microsoft Corp., the timing to consummate the proposed transaction and
any necessary actions to obtain required regulatory approvals, and the
diversion of management time on transaction-related issues. For further
information regarding risks and uncertainties associated with Microsoft
Corp.'s business, please refer to the "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and "Risk Factors"
sections of Microsoft Corp.'s SEC filings, including, but not limited to,
its annual report on Form 10-K and quarterly reports on Form 10-Q, copies
of which may be obtained by contacting Microsoft Corp.'s Investor Relations
department at (800) 285-7772 or at Microsoft Corp.'s Web site at
http://www.microsoft.com/msft.

All information in this communication is as of Feb. 1, 2008. Microsoft
Corp. undertakes no duty to update any forward-looking statement to conform
the statement to actual results or changes in the company's expectations.

For more information, press only:

Rapid Response Team, Waggener Edstrom Worldwide, (503) 443-7070,
rrt@waggeneredstrom.com

Joele Frank, Wilkinson Brimmer Katcher: Joele Frank/Eric
Brielmann/Jamie Moser, (212) 355-4449

Financial analysts and investors only:

Colleen Healy, General Manager, Investor Relations, (425) 706-3703

Note to editors: If you are interested in viewing additional
information on Microsoft, please visit the Microsoft Web page at
http://www.microsoft.com/presspass on Microsoft's corporate information
pages. Web links, telephone numbers and titles were correct at time of
publication, but may since have changed. For additional assistance,
journalists and analysts may contact Microsoft's Rapid Response Team or
other appropriate contacts listed at
http://www.microsoft.com/presspass/contactpr.mspx.




SOURCE Microsoft Corp.

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Feb 01 '08
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