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With an ambition of becoming an astounding competitor in the world of Internet search-related advertising against Google, Microsoft Corporation proposed to buy Yahoo Inc at $31 a share. This set the stage for what became to be a long and harsh conflict at the concession table. Saying the bid was a lot too low, Yahoo speedily declined Microsoft's offer, which led to Microsoft withdrawing its bid from the table. The issue at hand has been subject to criticism and praise to the both parties. Some critics said that Microsoft was just taking advantage of yahoo's financial status while others felt that yahoo should have accepted such a great offer. Despite being surrounded with much debate, the issue is normal since mergers and acquisitions have constantly shaped the nature of many companies especially in America. The core function of these mergers and acquisitions is to create an enabling business environment on basis of integration and healthy competition.
In line with this issue, the discussion will seek to analyze the failed attempt of Microsoft to acquire yahoo. This issue will be analyzed fully while paying greater attention to the role of financial management analysis in the issue. The paper will further discuss the interests of Microsoft in acquiring yahoo. In addition the basis of yahoo's rejection of the offer will be analyzed majoring on financial management analysis. The discussion will further assess whether yahoo was justified to decline the offer. Finally a personal outlook of the issue with special interest in the refusal will be provided as well as a review of the key issues in the discussion.
Microsoft proposed a $44.6 billion bid to acquire yahoo just a day after Yahoo's share price decreased tremendously to trade at $19.05. On November 05, 2007 Yahoo shares closed at $31.36; less than three months prior to the Microsoft proposal. Moreover, Yahoo's share price displays substantial volatility and it had not accounted for a major slump in its operations in the months preceding the decline of the stock from above $30. However, despite these facts, share prices on a specific day are worthless as prices can move severely even on the basis of irrelevant trading volume. This implies that Yahoo's $19.18 a share closing price on January 31, 2008 was unexpectedly. Moreover, this price did not indicate a practical assessment of Yahoo. Taking advantage of these trends, Microsoft proposed a much peddled 60 percent premium over Yahoo's closing price on January 31st. Categorically, this move by Microsoft seemed to be mostly a well-designed and smartly executed public relations coup (Latif, 2008).
Dilger (2008) indicates that Microsoft's interest in Yahoo was all about growing in online figure so as to compete with Google which is the leader in online services. Moreover, Microsoft anticipated benefiting from operational efficiencies and mutual costs accruing from the acquisition. The open letter written to Yahoo shareholders sounded very suspicious to the company. This was similar to the case of Carly Fiorina's playfully positive but eventually disastrous strategy to merge Compaq into HP. The letter conspired that there are noteworthy benefits of scale in promoting platform economics while online advertising growth persists. In addition, there would be benefits in capital costs for search index build-out, and in research and development. Particularly, the letter noted that synergies linked to scale economics would help the pooled companies to rival in a market where there is merely one player at scale. This notion specifically pictured Google, with which Microsoft intended and still intends to compete with. This is a clear indication that the initial intentions of Microsoft for the acquisition were not based on mutual gain of the two companies. Rather it was for the sole purpose of gaining full control of the online advertising industry dominated by Google.
Microsoft's failed acquisition offer for Yahoo has been evaluated continuously in the media where countless justifications have been presented for Microsoft's interest in Yahoo. Analysts have commonly supposed the apparent scenario that Microsoft made the proposal so as to acquire Yahoo. Despite these allegations, Yahoo CEO Jerry Yang, disagree with this assumption and has openly claimed that Microsoft did not aim to acquire Yahoo. However, this claim by the CEO has been dismissed constantly by most of the analysts. These analysts claim that the CEO is only covering the reality that his company was making the wrong move (Latif, 2008).
Another reason that Microsoft used to justify their proposal is the need for emerging user experiences. This is where there are intentions to drive modernization in emerging situations such as online trade, social platforms, social media, mobile services and video. Additionally, Microsoft anticipates cobbling jointly, something that can compete with Google in terms of size by buying Yahoo. The company asserts that strategies originally applied by Google to prosper, is no longer a preference in a matured market. These early strategies include using a better business model or offering better search results (Dilger, 2008).
Meanwhile, studies of the likely chartbuster arrangement have been non-stop, with Yahoo and Microsoft giving differing reactions as assumptions spins around them. For instance, in a press statement, Yahoo consented that its board would assess the spontaneous offer cautiously and quickly and possibly assumes the best course of action to capitalize on long-term satisfaction for shareholders. Microsoft's declarations were grander, exhibiting the notion that the pooled companies would frustrate Google's hold on the online advertising market and allow them to attain scale economics while getting critical mass to deliver renovation breakthroughs (Leone, 2008).
Microsoft has been squandering away its cash accumulation by buying back its own stock and paying bonuses to investors. Stock and bonuses buyback are what a firm does when it resolves that its shareholders can do more with its cash than the firm itself can do with the money. Microsoft has been gambling against its own prospect, fundamentally giving away its cash position since it saw nothing it could successfully do with it. This move was inevitably another reason that the company wanted to acquire yahoo. However, it can hold on to its savings if it were capable of turning that cash around to purchase deliberate products or firms to enlarge its position, or to spend in building out new development of its own (Dilger, 2008).
Another reason noted by Microsoft was applying operational efficiencies in eradicating surplus infrastructure and duplicative operating costs. This assertion alleges that some operating costs which are always duplicated by the firm could be terminated by a plain rebranding of Yahoo's expertise under the Microsoft label. It was also noted that this can be achieved by a hotmail-style changeover of Yahoo's structures to a Windows-powered infrastructure (Dilger, 2008).
Despite the numerous interests that Microsoft had on the offer, and the ultimate decline of the proposal by yahoo, there are various anticipated advantages that yahoo could have accrued from the acquisition. One of the major likely gains by yahoo is the so called Double dummy structure in which the stock payment segment of a contract is permitted to remain tax-free. Consequently, Yahoo shareholders would only pay taxes on the cash segment of the deal. The system is helpful to shareholders who hold the firm' stock at very low share costs. This likely comprises Yahoo's Yang and Filo and other early on shareholders. Those shareholders most likely hold shares that were purchased at the early public offering price of $13 per share or lesser and would be smacked with a 15 percent capital gains tax if Microsoft's $31-per-share bid is accepted. Moreover, according to a conventional approximation, a double-dummy system could save the initiators millions of dollars in taxes. For example, consider a situation in which 25 percent of the 43 million shares Yang presently possesses were purchased for $13 per share. That fraction of his collection, 10.75 million shares, would be at a value of $193.5 million if Yahoo agrees to the existing Microsoft proposal (Leone, 2008).
This pursue by Microsoft can be termed as a hostile takeover. Following this line of argument, Yahoo is presented with various options that it can undertake. First Yahoo can stop Microsoft from this hostile take over through buying back their individual stock from its shareholders to boost their majority shares. Preferably, owning 51% of the shares would guarantee that no one can thrive in a hostile take over effort. The other option is through a Golden Parachute. This is a stipulation in a CEO's agreement which alleges that he will get a huge bonus in stock or cash if the firm is acquired. Ideally, this renders the acquisition less desirable and more costly. Yahoo can take this option if it absolutely does not want to get into the merger. Another more forceful that it can take is through staggered board of directors dragging out the acquisition procedure by blocking the whole board from being reinstated at the same time. On the other hand, the best option for Microsoft is to keep this in news and broadcast this merger in so far as possible. This will considerably exert pressure which will eventually effect in purchasing majority shares from persons. Moreover, it has to convince personal share holders that selling their shares to Microsoft will effect in advantage for all. This is a replacement war in which, if Microsoft is able to buy 51% shares then Yahoo is not left with an option.
Focusing on financial management analysis, it is considered to have played a major in the refusal of yahoo to accept the Microsoft offer. Basically, financial management analysis is founded on commercial financial reporting and other accounting. This reporting is based on the data collected using a variety of systematic techniques and pointers of the company's financial stand. Moreover, it is based on operating outcomes of assessment and research, as shareholders, creditors, managers, and other social divisions of the economy predict or decision-making is founded on a Financial Management actions. For mergers and acquisitions, the financial management analysis has two purposes: foremost, the examination of perspective into the company's own financial stand and financial strength; secondly, is to examine the peripheral stakeholders to establish the financial position and financial strength.
Linked to this analysis it is evident that yahoo evaluated its financial strength so as to decline the offer. This is supported by the fact that the offer came during a time when yahoo was experiencing financial difficulties. Moreover, the fact that these are two very different companies in their activities, their financial planning and management is diverse prohibiting a possible merger. Another aspect of financial analysis is the fact that Yahoo declined the offer on the basis that it was very low, thereby forcing Microsoft to withdraw the proposal. For instance, Kawamoto (2008) asserts that rather than just jumping at the $33 a share offer, Yahoo assumed that it could significantly get more for its shareholders by counteracting with a $37 a share offer. Moreover, Yahoo believed that in making its counter bid, Microsoft would either respond with an advanced proposal which is more than $33 a share, or hold on to that price.
There are various negative consequences that might accrue from Microsoft's acquisition of Yahoo. Primarily, this move would obliterate vast quantities of synergy-resistant products and services. Moreover, Microsoft's purchase of Yahoo would either deliberately effect in the discharge of radiant open source engineers who would possibly take their knowledge straight to Google. In addition, it would merely send out cultural waves that would trigger employees to leave willingly. Besides loosing workers, Microsoft would also probably crush to death Yahoo's residual products by inventing new Windows-centric ties, sending the very audience that Microsoft is anticipating to buy in other ways. Flicker users would mostly be lured to move to Google's Picassa, Yahoo IM users to Google Talk, Yahoo Mail users to Gmail, and anybody who still uses Yahoo search would probably move to using Google as well. Overall, this means that Google gains while yahoo looses. Moreover, a hostile takeover of Yahoo by Microsoft would have an alarming effect on Yahoo's present affiliations with open source developments and its rising amalgamations with partners such as Apple. While and Apple Google have founded themselves in fixed affiliations, Apple has also gone out of its way to expand a connection with Yahoo (Dilger, 2008).
Besides just being a multifaceted loser notion in general, a hostile takeover of Yahoo at $44.6 billion or more would remove all the cash presently held by Microsoft then some. The firm reported around $21 billion in short term assets and cash at the end of the year 2007 (Dilger, 2008). In line with these consequences, Yahoo would restrain from a hostile takeover, due to various examples of hostile takeovers. The most well-known current proxy fight was Hewlett-Packard's takeover of Compaq. The contract was valued at $25 billion, but Hewlett-Packard supposedly used up enormous sums on promotion to sway investors. HP wasn't fighting Compaq - they were struggling with a group of shareholders including founding members of the firm who resisted the merge. Approximately 51 percent of investors voted in goodwill of the merger. In spite of efforts to stop the contract legally, it went as planned.
Yahoo has been condemned by investors for refusing to accept the Microsoft offer, with shareholders articulating concern that the company's board and co-founder were more focused in keeping the corporation sovereign at all costs. However, as with any disagreement, there are two sides to the story. A Microsoft spokesperson said that the refusal by Yahoo is merely revisionist history. Moreover, explicating Yahoo's timeline of major occasions, it states that Microsoft made a spontaneous takeover offer for Yahoo on February 1 for $31 a share and that the Internet founder give out d a public statement on February 11, refusing the proposal (Kawamoto, 2008).
On the other hand, Yahoo typifies Microsoft as insensitive and conflicting with its spontaneous buyout effort of the company. It further alleged that the record casts uncertainty on whether Microsoft was ever dedicated to an entire company takeover. Yahoo, who has been crashed by shareholders walking away from the stock since Microsoft said it was no longer concerned in acquiring the whole company at $33 a share, laid various grievances against Microsoft. First, it asserted that Microsoft was insensitive to numerous requests that it had raised and there was no reply to regulatory information demands. Moreover, it alleged that there was no response to non-price terms, including value protection for stock constituent and regulatory matters. In addition, there was no revisited price suggestion until quite a few months into the development, days before withdrawing. These last two assertions laid Yahoo's basis for declining the offer based on financial management. (Kawamoto, 2008).
Another basis for Yahoo's decline of the offer is the fact that any synergy between the two companies can actually be possible through friendly affiliations even without acquisition. Microsoft and Yahoo have by now signed contracts on connecting their proprietary immediate messenger schemes to rival against open chat procedures backed by Google. Both firms can actually team up on mutually marketing add space on their search properties, even if they are not merged. Forcing the two to merge will not result in something of better value since everything they can effectively do together they can do separately (Dilger, 2008).
In the newest offer, Microsoft is twisting the notion of merging as being beneficial to Yahoo. Microsoft is alleging that Yahoo might advance proceeds for its search processes by out-sourcing and selling all its paid-search functions to Microsoft. This basis is completely not valid. It is like Toyota aspiring to acquire General Motors's manufacturing so as to enhance margins for General Motors. Microsoft's basis is even more unintelligible since Toyota can be depended on to convey gains for General Motors, but Microsoft is itself under pressure in paid-search and can not perhaps deliver any lasting gains to Yahoo. The entire gains argument is a new creation, and can not clarify why Microsoft has been trying to co-own Yahoo's paid-search procedures because even before, its in-house paid-search infrastructure was equipped (Latif, 2008).
Kawamoto (2008) states that while Yahoo's investor appearance carries much aspect on the rational behind its contacts with Microsoft, two things are lacking: the basis behind its refusal of Microsoft's verbal $33 a share proposal and how it decided that a counter bid at $37 a share was suitable.
Another assertion that provides Yahoo's grounds for refusal is that the two companies have enormous product differences that surpass even that of the combined Adobe and Macromedia. These superfluous properties and services can not be efficiently merged since they're all established on very diverse foundations. Music, maps, Yahoo Mail, blogs, IM, search, video, and others would all be reinstated with the Microsoft version, be eradicated or otherwise replace Microsoft's existing offerings. Particularly, combining Yahoo Mail and MSN is subtractive worth annihilation but not synergy (Dilger, 2008).
In actuality, Yahoo had slight option but to reject Microsoft's terms. The money Microsoft proposed might have been good temporarily but it was dubious if Yahoo could have stayed sovereign after losing its search assets. In addition, Yahoo was able to organize a better contract with Google that does not engage Google buying Yahoo's paid-search assets and essentially develops Yahoo's paid-search monetization. It is very surprising that rather than offering a more competitive bid, Microsoft has been busy attempting to undermine the Yahoo Google deal. It has been doing this by presenting antitrust allegations, and even seems to have thrived at getting the US Department of Justice to examine the Yahoo Google deal (Latif, 2008). Moreover, Microsoft's deeds and declarations were conflicting. For instance, it openly proclaimed a spontaneous deal, a move which annoyed Yahoo and possibly led to its refusal. In addition, Microsoft threatened to pull out, to lower price and a proxy fight. The company only verbally indicated likely increase in price following numerous months of negotiations. It first stated "a few" more dollars, then "a couple" more dollars per share. (Kawamoto, 2008).
Yahoo's basis for refusing to accept the Microsoft offer can be presented in two ways. One way the basis is fully valid due to a number of reasons. It is evident that Microsoft did not have the interests of Yahoo at hand when proposing the offer. It was very much occupied with the benefits it would get in competing with Google in online advertising. On a personal view, Microsoft was taking advantage of Yahoo and therefore I think that the decline by Yahoo was justified. Concerning the issue of finances, Yahoo should have actually refused the offer since it was actually struggling financially. On the other hand, one would argue that Yahoo lost a very great opportunity of a lifetime. On this basis also, it can be argued that Yahoo did not consider all the options available and did not possibly look at the beneficial side of the offer. It was very quick to decline the offer. The intentions of Microsoft in proposing the offer was also two fold according to the company. They alleged that Microsoft was to benefit and also Yahoo was to benefit. A major area where Yahoo could have benefited is through tax exemptions on their shareholders. Under this aspect Yahoo! should have concentrated on the benefits that the acquisition would benefit its shareholders who are the main stakeholders of the company.
Looking at these two sides of the issue it is difficult to ascertain with finality whether Yahoo was justified in its decline of the offer. That is why the issues surrounded with a lot of controversial debates. Considering financial management, planning and analysis, it is evident that the issue cannot be ignored when dealing with merges and acquisitions. In this line financial management analysis played a great role in Microsoft's failed attempt to acquire Yahoo! Here, financial management analysis reflects the opportunities and the risks of engaging in a business or commercial activity. Moreover, through the financial management analysis and planning, Yahoo scrutinized the deal. This consequently led to Yahoo making their decision based on the results from the analysis. Yahoo realized that it was not to benefit from the deal financially hence declined the offer. Yahoo also analyzed the merger against other mergers that had happened so as to establish whether they were successful or they ended up frustrating the acquired company. Finally, the inconsistency on the side of Microsoft Company and its publicity of the offer even before the deal was agreed upon largely shaped Yahoo's position to decline the offer.