Congressional hearing will scrutinize Microsoft bid for Yahoo

Congressional hearing will scrutinize Microsoft bid for Yahoo

by Glenn ChapmanSat Feb 2, 1:55 PM ET

The US Congress Judiciary Committee will hold a hearing next week to scrutinize Microsoft's multi-billion-dollar bid to acquire Yahoo in order to take on Internet goliath Google.

Leading members of the committee scheduled a February 8 hearing after Microsoft's announced Friday it is courting California-based Yahoo with a 44.6-billion-dollar offer.

"Microsoft's bid to acquire Yahoo is certainly one of the largest technology mergers we've seen and presents important issues regarding the competitive landscape of the Internet," Congressmen John Conyers and Lamar Smith said in a written statement.

"The Committee will hear from experts who will weigh in on whether this proposed consolidation works to further or undermine the fundamental principles of a competitive Internet."

Conyers, a Democrat from the state of Michigan, heads the judiciary committee and Smith, a Republican from Texas, is a member.

The committee's Antitrust and Competitive Policy task force will hold the hearing to give the idea of a Microsoft-Yahoo merger "careful examination," the congressmen said.

Yahoo has yet to say whether it will accept the offer, but analysts believe it is too good a deal for the struggling Internet veteran to refuse and that US regulators are unlikely to find grounds to stop it.

The deal could reshape the landscape for high technology by combining Microsoft and one of the leading brands on the Internet.

The move comes as Yahoo is losing ground rapidly in the Internet space to Google, a search leader which has cashed in on the market for online advertising.

Yahoo would offer Microsoft a search engine to compete with Google's; a popular web portal for email, shopping and news, as well as one of the most recognized brands among online users.

California-based Google is itself challenging Microsoft in cyberspace. It beat out the Redmond, Washington giant in buying hot video-sharing website YouTube and online ad-targeting colossus DoubleClick.

Google is also ramping up offerings of on-demand online software that compete with Microsoft products.

"Google is moving more and more into Microsoft's territory and it was about time Microsoft went on the offensive," said Briefing.com analyst Kimberly DuBord.

Microsoft and Yahoo websites combined get 15.6 percent of all online traffic in the United States while Google gets 7.7 percent of Internet visits in the country, according to Hitwise statistics from the end of January.

When it comes to online searches, however, Google rules with 65.98 percent of the US market, Hitwise reported.

Google's dominance in search and the low barrier of entry into the market are expected to ameliorate antitrust concerns and clear the way for a Yahoo-Microsoft merger should such a deal be struck.

Microsoft said it believes the proposed combination would get a stamp of approval from regulators and be completed in the second half of 2008.

 

SAN FRANCISCO (Reuters) - Google Inc (NasdaqGS:GOOG - News) fired back on Sunday at Microsoft Corp's (NasdaqGS:MSFT - News) $44.6 billion bid to acquire Yahoo Inc (NasdaqGS:YHOO - News), accusing Microsoft of seeking to extend its computer software monopoly deeper into the Internet realm.

David Drummond, a Google senior vice president and its chief legal officer, said in a blog post that the combination of Microsoft and Yahoo could undermine the open competition that has fueled more than a decade of Web innovation.

"Between them, the two companies operate the two most heavily trafficked portals on the Internet," Drummond wrote in a blog post to be published at http://googleblog.blogspot.com.

"Could a combination of the two take advantage of a PC software monopoly to unfairly limit the ability of consumers to freely access competitors' email, IM, and Web-based services?" he asked rhetorically, noting that Microsoft has a history of using its monopoly positions to dominate newer, adjacent markets.

The Google executive called on policymakers around the world to challenge the merger. In making its case for the deal on Friday, Microsoft executives said Google -- not Microsoft -- was the one company antitrust regulators were likely to bar from buying Yahoo based on Google's dominance in Web search.

 

Interesting read, thanks for posting it.

I'm apparently one of the few around here that is against Microsoft buying Yahoo. Some say that combined, Microsoft and Yahoo can take on Google. I don't believe this. I believe if each search engine invests in its own technology and offers something worthwhile to searchers and webmasters, then their search engine will grow.

If this deal goes through, Microsoft will probably run both search engines for a while to appease regulators. After that, Microsoft will probably absorb Yahoo and lay off a lot of employees. There's no need to have two web spam departments, payroll departments, human resource departments, etc. A lot of good people will lose their jobs and webmasters will be left with two search engines. This only strengthens Google's dominance.

 

Didn't catch that post. Thanks for mentioning it.

 

Yahoo Inc.'s board will reject Microsoft Corp.'s $44.6 billion takeover bid after concluding the unsolicited offer undervalues the slumping Internet pioneer, according to a person familiar with the situation.

The decision could provoke a showdown between two of the world's most prominent technology companies.

If the world's largest software maker wants Yahoo badly enough, Microsoft could try to override Yahoo's board by taking its offer — originally valued at $31 per share — directly to the shareholders. Pursuing that risky route probably will require Microsoft to attempt to oust Yahoo's current 10-member board.

Alternatively, Microsoft could sweeten its bid. Many analysts believe Microsoft is prepared to offer as much as $35 per share for Yahoo, which still boasts one of the Internet's largest audiences and most powerful advertising vehicles despite a prolonged slump that has hammered its stock.

Yahoo's board reached the decision after exploring a wide variety of alternatives during the past week, according to the person who spoke to The Associated Press. The person didn't want to be identified because the reasons for Yahoo's rebuff won't be officially spelled out until Monday morning.

Microsoft and Yahoo declined to comment Saturday on the decision, first reported by The Wall Street Journal on its Web site.

Yahoo's board concluded Microsoft's offer is inadequate even though the company couldn't find any other potential bidders willing to offer a higher price.

By spurning Microsoft, Yahoo risks further alienating shareholders already upset about management missteps that have led to five consecutive quarters of declining profits.

The downturn caused Yahoo's stock price to plummet by more than 40 percent, erasing about $20 billion in shareholder wealth, in the three months leading up to Microsoft's bid.

Seizing on an opportunity to expand its clout on the Internet, Microsoft dangled a takeover offer that was 62 percent above Yahoo's stock price of just $19.18 when the bid was announced Feb. 1. Yahoo shares ended the past week at $29.20.

Led by company co-founder and board member Jerry Yang, Yahoo now will be under intense pressure to lay out a strategy that will prevent its stock price from collapsing again. What's more, Yang and the rest of the management team must convince Wall Street that they can boost Yahoo's market value beyond Microsoft's offer.

Yahoo's shares traded at $31 as recently as November, but have eroded steadily amid concerns about the slowing economy and frustration with the slow pace of a turnaround that Yang promised last June when he replaced former movie studio mogul Terry Semel as Yahoo's chief executive officer.

This isn't the first time that Yahoo has spurned Microsoft. The Redmond, Wash.-based company offered $40 per share to buy Yahoo a year ago only to be shooed away by Semel, according to a person familiar with the matter. The person didn't want to be identified because that bid was never made public.

Yahoo now may want that Microsoft to raise its price to at least $40 per share again. That would force Microsoft to raise its current offer by about $12 billion — a high price that might alarm its own shareholders.

Microsoft's stock price already has slid 12 percent since the company announced its Yahoo bid, reflecting concerns about the deal bogging down amid potential management distractions, sagging employee morale and other headaches that frequently arise when two big companies are combined.

Although it isn't involved directly in the deal, Internet search leader Google Inc. looms as major player. Yahoo has struggled largely because it hasn't been able to target online ads as effectively as Google.

Microsoft believes Yahoo's brand, engineers, audience and services will provide the company with valuable weapons in its so far unsuccessful attempt to narrow Google's huge lead in the lucrative Internet search and advertising markets.

As it examined ways to thwart Microsoft, Yahoo considered an advertising partnership with Google — an alliance long favored by analysts who believe it would boost the profits of both companies. It was unclear Saturday if Yahoo's plans for boosting its stock price include a Google partnership, which would probably face antitrust issues.

A Microsoft takeover of Yahoo would also be scrutinized by antitrust regulators in the United States and Europe. The antitrust uncertainties could be cited as one of the reasons that Yahoo's board decided to spurn Microsoft.

 

SAN FRANCISCO — The war of words between Yahoo and Microsoft has begun.

Hours after Yahoo officially rejected Microsoft’s takeover offer on Monday, calling it too low, Microsoft described Yahoo’s response as “unfortunate” and said its own proposal was “full and fair.”

Microsoft’s statement suggests that, at least for now, the company is not willing to raise its price. Microsoft also indicated anew that it was ready for a fight, repeating earlier statements that it might consider “all necessary steps” to ensure the deal is completed.

Experts said Microsoft could ratchet up pressure on Yahoo’s board by taking its offer directly to shareholders and waging a proxy fight to oust Yahoo’s directors; it has until March 13 to nominate a new slate of directors.

Earlier in the day Yahoo said Microsoft’s bid “substantially undervalues Yahoo including our global brand, large worldwide audience, significant recent investments in advertising platforms and future growth prospects, free cash flow and earnings potential, as well as our substantial unconsolidated investments.”

Yahoo said its board would “continue evaluating all of its strategic options.”

Microsoft initially offered to buy Yahoo for $44.6 billion, or $31 a share, in a mix of cash and stock. After a decline in Microsoft’s shares, the value of the offer now stands at less than $29 a share.

Yahoo’s board has explored other alternatives, including a search advertising partnership with Google, but has not received any competing acquisition offers, according to people briefed on its situation.

Absent such an offer or a deal that could persuade investors that Yahoo shares will go up significantly, the company’s best bargaining chip was the prospect of a friendly deal at a higher price, said Michael Klausner, a Stanford Law School professor who specializes in corporate law and corporate governance.

“Microsoft would much prefer a friendly deal, because it wants to retain good relationships with Yahoo executives and retain employees,” he said.

One Yahoo shareholder said the Microsoft and Yahoo statements represented the early stages of an expected negotiation.

“I think Microsoft has made it pretty clear that they are not about to back off here,” said Ryan Jacob, portfolio manager for the Jacob Internet Fund, which counts Yahoo among its top holdings. Mr. Jacob, whose fund has about $60 million in assets, said he favored a combination of Yahoo and Microsoft, as it would create a stronger competitor to Google. But he defended Yahoo’s initial rejection, saying the board was right to hold out for a higher offer.

Microsoft suggested that Yahoo shareholders it had polled viewed the deal favorably. “Based on conversations with stakeholders of both companies, we are confident that moving forward promptly to consummate a transaction is in the best interests of all parties,” Microsoft said. Many Yahoo shareholders are also Microsoft shareholders and might not necessarily favor a higher offer.

In a letter to employees explaining the company’s position on Monday, Jerry Yang, Yahoo’s chief executive, said they deserved credit for Yahoo’s success.

But some Yahoo employees will soon find out that their work is no longer needed. The company said last month that it would lay off about 1,000 employees by mid-February, though some would be allowed to apply for other jobs in the company. A person close to Yahoo said the layoffs could be announced as early as Tuesday.

 

Yahoo is in a very bad situation right now and there will be more lay offs there. I think eventually this situation will work in Microsoft's favor. We will see...