Microsoft Yahoo then Facebook? Rejected – Microsoft Did Bunker Down in Palo Alto

Silicon Alley Insider has an interesting tidbit that confirms my story on June 19th that Microsoft was bunkered down in Palo Alto. It was that weekend that had Microsoft and Yahoo folks all over Palo Alto.

Henry Blodget writes on his blog today the details of what transpired on the weekend prior to June 19 as reported here on Furrier.org. Microsoft was in town to consummate the deal in Palo Alto as well as make a run at Facebook. It’s clear now they did make a run at Facebook but was rejected. Now Microsoft is trying to get support from the other players to stitch together a search plan. With Powerset now in the stable. Microsoft is moving to what looks like an orchestrated maneuver to get a search and online story fast.

He writes “Today’s Wall Street Journal, however, echoes reports that Yahoo left out at least one embarrassing detail from its “Microsoft timeline”–one that confirms that the excuse it used to reject the deal for months was nonsense:”

[On Saturday, May 17, in Palo Alto, Calif., two weeks after Microsoft walked], Yahoo CEO Jerry Yang, director Ron Burkle and chairman Mr. Bostock met with Microsoft’s Mr. Ballmer. Messrs. Bostock and Burkle told Mr. Ballmer they were prepared to sell Yahoo for $33 to $34 a share, the price range Microsoft had offered before talks broke down, according to people familiar with the meeting. That would have valued the deal at about $47 billion, or $6 billion less than Yahoo’s previous asking price of $37 a share

Microsoft was moving to get Yahoo search and had the messaging ready then was off to put the ‘checkbook’ in front of Facebook. They were pushed aside. Microsoft isn’t getting both of them but will mount a campaign to get equivalent “pieces” to compete against the ‘tide’ that is search 2.0 and social networks.

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Yahoo ReOrging and On The Move – Strategy Hole?

Kara Swisher reported last night that Yahoo would announce the big reorg. Well she was correct. Yahoo announced the ReOrg today. Not much to say other than what is already being reported.

Here is the detail as of today (thanks Kara Swisher) .. the structure will pivot on several key execs, reporting to President Sue Decker.

EVP of Yahoo’s Platforms and Infrastructure division Ash Patel as head of a new Audience Products group (its name was changed from Global Products); Global Partner Solutions EVP Hilary Schneider as the head of a new U.S unit; various folks running around the rest of the globe.

There will also be another strategy team group with a new head, who has not yet been chosen.

And Yahoo will name Scott Dietzen (pictured, right) to take over the job of SVP Brad Garlinghouse, running all communications and community properties and products under Patel.

What All This Means?
To me the big area that is critical for Yahoo is corporate *and* competitive strategy. These variables are not mutually exclusive. Yahoo has some big weapons but under their current condition they have limited energy, time, and people resource (know-how) to execute. Therefore, it’s a chess game not a frontal brute force battle. Yahoo has to be smart and execute with precision. Every move needs to be calculated in context to their corporate and competitive plan. Yahoo has been winging it for years – relying on their massive pageviews and audience subscribers.

Yahoo needs to be “all in” and compete. I am in the camp of pro-Yahoo (always have been). I’m cheering for them to pour it on AND compete.

Defensive Strategy: Yahoo Sends CYA Letter to Shareholders

Today Yahoo sent a letter to their shareholders talking about the latest developments (wow what an understatment). I originally blogged that the Google deal was a ‘white knight’ deal for Yahoo. It forced Microsoft to run out on the deal. It was a godfather deal that allowed Yahoo to cover their ass against lawsuits (I’m sure they are coming).

Here is the letter that Yahoo sent out. I’m sure Kara Swisher will decode this for us. Mike Arrington says it’s a ‘buy the entire cow deal – the search milk isn’t for sale’.

My take: Yahoo will keep Jerry Yang and put a new team together. I’d love to fly that ship for a day. I think that Yahoo has some big guns it could bring out. They need guts and a maverick management team.

Dear Fellow Stockholders:

We are writing to update you on the latest developments here at Yahoo!, including our recently announced commercial agreement with Google and the outcome of our discussions with Microsoft regarding a potential transaction.

On June 12, we announced a non-exclusive agreement with Google that we expect will generate approximately $250 to $450 million in incremental operating cash flow for Yahoo! in the first twelve months following implementation. This cash flow will enhance our profitability as well as help support achievement of our key strategic objectives. Combined with continuing advances in our own search capability, the agreement is an important step in our efforts to capitalize on the high-growth online advertising opportunities where we are best positioned to compete successfully and create more value.

Let us explain why we find this new agreement so exciting.

The Yahoo!-Google Agreement is Financially Attractive and Strikes the Right Strategic Balance.

Under the agreement with Google, Yahoo! will continue to provide algorithmic and sponsored search results, but now will also have the ability to run sponsored search ads supplied by Google alongside Yahoo!’s search results. Advertisers will pay Google directly for each click on Google paid search results appearing on Yahoo!. Google will then pay us a fee (in industry jargon, traffic acquisition cost) based on revenue realized from click-throughs on ads supplied to Yahoo! by Google.

This carefully structured agreement strikes the right strategic balance, enhancing our financial results while advancing our strategic objectives of being the “starting point” for the most users on the Internet and offering such compelling value that advertisers will see us as the “must buy” in online advertising.

One of our key strategies for achieving these objectives is to capitalize on the increasing convergence of search and display advertising, where we are especially well positioned to compete and succeed. We have already accelerated our efforts to strengthen our presence in display through a variety of initiatives and acquisitions in recent months. Our new commercial agreement with Google enhances our ability to pursue this strategy.

Another key strategy is to open our platform to other developers to optimize monetization for our advertisers and publishers and provide the best experience for our users. We see this agreement as a natural extension of the efforts we have already made toward an open marketplace.

The Google agreement is non-exclusive and provides strategic and operational flexibility for Yahoo!. It allows Yahoo! to use Google’s services in those areas where Google monetizes our inventory more effectively but also permits us to continue to use our own search technology in areas where we believe we are most competitive. The net result is that the agreement helps us accelerate one of our strategic aims–closing the monetization gap. At the same time, it allows Yahoo! to continue to compete aggressively in search and display advertising.

Importantly, the agreement does not prevent Yahoo! from pursuing other alternatives that could increase stockholder value. Because the agreement can be terminated by either party upon a change in control, it would not preclude a transaction with Microsoft or any other potential acquiror in the future.

The Yahoo!-Google Agreement Does More for Stockholder Value than Microsoft’s Search-Only Hybrid Proposal.

We also want to update you on the conclusion to our discussions with Microsoft regarding a potential transaction. As we explained in our last letter, our board and management held numerous meetings and conversations with Microsoft about its proposal to acquire Yahoo!, both before and after Microsoft withdrew that proposal on May 3. On June 8, our Chairman, Roy Bostock, other independent board members, and members of Yahoo!’s management team again met in person with Microsoft representatives. At that meeting, Microsoft stated unequivocally that it has no interest in acquiring all of Yahoo!, even at the price range Microsoft had previously suggested.

Microsoft did propose an alternative transaction. Rather than acquire our whole company as it had been proposing for months, Microsoft now proposed to acquire only our search business for $1 billion and a share of future search advertising revenue. This proposal also included an $8 billion investment in Yahoo! but required Yahoo! to commit to a 10-year exclusive arrangement that would have made us dependent on Microsoft for all of our search business. It would also have given Microsoft veto rights on certain future Yahoo! actions, including a sale of Yahoo!. Our board of directors and management made a great effort–and conducted in depth negotiations–to elicit a feasible proposal from Microsoft that made strategic and financial sense for Yahoo!, but without success.

While Microsoft’s search-only hybrid proposal may have been helpful to Microsoft, our board and management concluded it would have had a significant adverse impact on Yahoo! strategically, leaving the Company without the operational control of search assets and technology we view as critical to our objective of becoming a leader in the converging search and display advertising business. The board and its advisers also carefully studied the financial impact of Microsoft’s proposal and concluded that it would have provided no meaningful improvement to our operating cash flow. In short, this proposal would have generated substantially less value for Yahoo! stockholders than Microsoft has suggested.

Based on all the key factors–strengthening our competitiveness, protecting our strategic position, generating attractive financial returns–the Google agreement is far better than Microsoft’s search-only hybrid proposal. That’s why we moved forward with it.

Your Current Board of Directors Has the Knowledge, Experience and Commitment to Best Represent Your Interests and Maximize Stockholder Value.

The events of recent weeks underscore the fact that your board of directors is far better qualified to represent your interests in the effort to maximize stockholder value than the slate put forward by Carl Icahn.

Based on Mr. Icahn’s narrow agenda, it seems highly unlikely that either he or his slate would bring added value to Yahoo!. Consider the following:

– Mr. Icahn put forward his slate so as to sell Yahoo! to Microsoft, even though he had no knowledge of the sustained efforts made by your current board and management to determine whether Microsoft was willing to engage in a transaction that would provide appropriate value and certainty of achieving that value. On June 8, Microsoft once again made it perfectly clear that it is not currently interested in acquiring Yahoo!.
— Mr. Icahn publicly opposed any alternative form of transaction with Microsoft. Your board and management, after thorough and deliberate negotiations and evaluation, separately concluded on its own that the alternative hybrid deal proposed by Microsoft was, indeed, not in the best interests of the Company or its stockholders.
— Mr. Icahn urged, as an alternative to a Microsoft transaction, that Yahoo! find a way to partner with Google that would not preclude a transaction with Microsoft in the future. We have done exactly that through the commercial agreement with Google we announced on June 12.

Simply put, you can choose to vote for a slate of nominees with no articulated plan for the future of Yahoo!–and who now have essentially no alternative agenda to offer you–or you can choose to vote for your existing board of directors which has the independence, experience, knowledge and commitment to navigate the Company through the rapidly-changing Internet environment, execute on our strategic objectives and deliver value for Yahoo! and its stockholders.

It is time for Yahoo! to turn its undivided attention to implementing its key strategies, and we therefore urge you to reject Mr. Icahn’s slate and his ill-defined agenda.

We strongly urge you to vote your WHITE Proxy Card today for your current board of directors.

We look forward to sharing our progress with you as we move forward and we thank you for your support.

Sincerely,

Roy Bostock Jerry Yang
Chairman of the Board Chief Executive Officer

Yahoo’s New CEO Mark Cuban ? It Would Work – He’s a Maverick

Kara Swisher has a post on the short list of CEO candidates for Yahoo. She is assuming that Jerry won’t make it. I think that he’ll last even though everyone wants his head.

That being said Kara brings up a great candidate that isn’t a wildcard in my mind – Mark Cuban. I’ve had the chance to get to know Mark over the past few years – we even did a podcast together way back when. He has the attitude to move Yahoo fast in a good direction. Translation: he isn’t afraid to say what is needed to say, do what is needed to do, and recruit the right team to dominate a market.

Forget his enterpreneurship background and his aggressive in your face personality (which I don’t mind at all), he has done something pretty amazing lately. He bought and turned around a NBA franchise in the Dallas Mavericks – and he did it fast.

What relevance does that have? Well pro athletes have huge egos, get paid big bucks, and are high maintence – but their good (hence called pros). The business deals in big swings and big money. All of this sound like Yahoo?

Plus what sweetness it would be for Mark to come back to Yahoo after his stint there post broadcast.com.

Mark: The question for you is… would you take it?

Microsoft Has To Be Pissed – Google the White Knight

Kara Swisher has a detailed report of the Microsoft offer to Yahoo. Microsoft has to be pissed.

What we have hear is a failure to communicate (name the movie). Yahoo did the ‘godfather’ deal with Google. Google is Yahoo’s white knight – period.

It’s a smokey back room deal that saves Yahoo from clutches of Wall Street and an escape from the frontal assault from Microsoft.

Microsoft’s only move? Burn the village and buy up the market. I expect Microsoft to go on a rampage and buy up everything that moves. They have to retreat and regroup.

Microsoft’s move: change the game. Google won this battle.

SAI has a great writeup on the details and implications on the Yahoo pass on Microsoft.

It’s the Silicon Valley poison pill.

Silicon Valley Rumor: Microsoft to Buy Yahoo Search and Then Facebook

My sources say that the Yahoo and Microsoft teams are bunkered down in a Palo Alto hotel hammering out the final stages of a transaction that will have Microsoft picking up the Yahoo search business. Word is that this deal will be done this week. While this is not surprising, it does bring to question the motives and plans of Microsoft.

Techmeme is buzzing about the latest Microsoft Yahoo talks that has Microsoft buying the Yahoo Search business only. Here is Microsoft’s and Yahoo official statements.

Why would such a complicated transaction (just Yahoo search with all the headaches and all) be in the cards for Microsoft? After the failed bid for $40 plus billion for all of Yahoo, Microsoft’s intentions are clear. Buy the search business from Yahoo and take that team and go spend at least 20 billion for Facebook. Integrating the search team at Yahoo with Facebook puts a formidable army to take on Google.

What a move this makes. Yahoo gets everyone off their back, Microsoft gets a credible position in search, and buys Facebook to compete with Google. The price about $45 billion.

This is going to be good.

Update: here is a post from Kara Swisher – Microsoft’s Kevin Johnson’s “We Can Compete” memo – Microsoft needs Facebook and Facebook needs Microsoft.

Update 2: Robert Scoble (my former employee 🙂 ) is taking my report of Microsoft buying Facebook conversation to the next level. This will be developing further but in the meantime the jockeying is going on. This explains the recent moves at many levels… take the employees of Google leaving to join Facebook.. Facebooks posture toward Google, and the general platform behavior lately of Facebook. Maybe they knew that they were pulling a Netscape last week – knowing that Microsoft guns for hostages were coming into town.

Update 3: This is why I love this guy Umair.. Leading minds see the strategy…good post Umair.

Yahoo – Put a Fork in You Because You’re Done – Wall Street Greed is Good

Yahoo is getting a taste of the real world. Greed is Good! They thought Steve Ballmer was hostile – hell he practically walked up with flowers with his lips puckered compared to what Icahn is up to. Someone get a fork cause Yahoo is done!

Kara Swisher pens one of the finest blog posts decoding the letter.. Kara has been on fire lately and on top of the Yahoo story from day one.

My fav line from Kara’s post is this:

Icahn wrote: It is clear to me that the board of directors of Yahoo has acted irrationally and lost the faith of shareholders and Microsoft. It is quite obvious that Microsoft’s bid of $33 per share is a superior alternative to Yahoo’s prospects on a standalone basis. I am perplexed by the board’s actions. It is irresponsible to hide behind management’s more than overly optimistic financial forecasts. It is unconscionable that you have not allowed your shareholders to choose to accept an offer that represented a 72% premium over Yahoo’s closing price of $19.18 on the day before the initial Microsoft offer. I and many of your shareholders strongly believe that a combination between Yahoo and Microsoft would form a dynamic company and more importantly would be a force strong enough to compete with Google on the Internet.

wheelsonthebus

Translation: Here I am stating the glaringly obvious. But don’t you like my use of self-righteous and indignant words like “unconscionable”?

Nonetheless, I must ask: What are you smoking over there on the Left Coast?

When someone dangles more than $40 billion to anyone on Wall Street, we’d throw our mother under the wheels of the bus if we needed to to get it. Frankly, we would do it for $12.43.

In any case, your break with reality is my golden opportunity.