May 3, 2008
Mr. Jerry Yang
CEO and Chief Yahoo
Yahoo! Inc.
701 First Avenue
Sunnyvale, CA 94089
Dear Jerry:
After over three months, we have reached the conclusion of the process
regarding a possible combination of Microsoft and Yahoo!.
I first want to convey my personal thanks to you, your management team,
and Yahoo!'s Board of Directors for your consideration of our proposal. I
appreciate the time and attention all of you have given to this matter, and
I especially appreciate the time that you have invested personally. I feel
that our discussions this week have been particularly useful, providing me
for the first time with real clarity on what is and is not possible.
I am disappointed that Yahoo! has not moved towards accepting our
offer. I first called you with our offer on January 31 because I believed
that a combination of our two companies would have created real value for
our respective shareholders and would have provided consumers, publishers,
and advertisers with greater innovation and choice in the marketplace. Our
decision to offer a 62 percent premium at that time reflected the strength
of these convictions.
In our conversations this week, we conveyed our willingness to raise
our offer to $33.00 per share, reflecting again our belief in this
collective opportunity. This increase would have added approximately
another $5 billion of value to your shareholders, compared to the current
value of our initial offer. It also would have reflected a premium of over
70 percent compared to the price at which your stock closed on January 31.
Yet it has proven insufficient, as your final position insisted on
Microsoft paying yet another $5 billion or more, or at least another $4 per
share above our $33.00 offer.
Also, after giving this week's conversations further thought, it is
clear to me that it is not sensible for Microsoft to take our offer
directly to your shareholders. This approach would necessarily involve a
protracted proxy contest and eventually an exchange offer. Our discussions
with you have led us to conclude that, in the interim, you would take steps
that would make Yahoo! undesirable as an acquisition for Microsoft.
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 will move forward and will continue to innovate and grow our
business at Microsoft with the talented team we have in place and
potentially through strategic transactions with other business partners.
I still believe even today that our offer remains the only alternative
put forward that provides your stockholders full and fair value for their
shares. By failing to reach an agreement with us, you and your stockholders
have left significant value on the table.
But clearly a deal is not to be.
Thank you again for the time we have spent together discussing this.
Sincerely yours,
/s/ Steven A. Ballmer
Steven A. Ballmer
Chief Executive Officer
Microsoft Corporation
