Microsoft CEO Steve Ballmer and his troop of strategists, lawyers, accountants, and bankers are done seeking a peaceful resolution with Yahoo's board of directors. It's been more than two months since Microsoft made what Ballmer calls a "generous" offer of $31 per share to acquire Yahoo. The more hostile phase of the negotiation is about to take place as evidenced in the letter sent by Ballmer to Yahoo CEO and co-founder Jerry Yang and its board of directors today.
Following is an interpretation in plain language (a sanitized version of what may have been said behind closed doors in composing the language of the note) of Ballmer's letter dated April 5, 2008.
It has now been more than two months since we made our proposal to acquire Yahoo! at a 62 percent premium to its closing price on January 31, 2008, the day prior to our announcement. Our goal in making such a generous offer was to create the basis for a speedy and ultimately friendly transaction. Despite this, the pace of the last two months has been anything but speedy.
What Ballmer means: Jerry, you are making us both look bad. It's time to get in gear, and if I have to bring on the irate dancing monkey and go straight to the shareholders, I will.
While there has been some limited interaction between management of our two companies, there has been no meaningful negotiation to conclude an agreement. We understand that you have been meeting to consider and assess your alternatives, including alternative transactions with others in the industry, but we've seen no indication that you have authorized Yahoo! management to negotiate with Microsoft. This is despite the fact that our proposal is the only alternative put forward that offers your shareholders full and fair value for their shares, gives every shareholder a vote on the future of the company, and enhances choice for content creators, advertisers, and consumers.
What Ballmer means: Jerry, you are backed up into a corner with no white knight coming to your rescue. Face it, we are your only hope for getting out of this mess. You can't go it alone. Google and Microsoft would eat your lunch.
During these two months of inactivity, the Internet has continued to march on, while the public equity markets and overall economic conditions have weakened considerably, both in general and for other Internet-focused companies in particular. At the same time, public indicators suggest that Yahoo!'s search and page view shares have declined. Finally, you have adopted new plans at the company that have made any change of control more costly.
What Ballmer means: Jerry, you have no wind behind your back. I don't care what your first quarter turns out like or whether you think you can double operating cash flow from $1.9 billion to $3.7 by 2010. The economy will break you and your are losing even more share to Google. Give it up.
By any fair measure, the large premium we offered in January is even more significant today. We believe that the majority of your shareholders share this assessment, even after reviewing your public disclosures relating to your future prospects.
What Ballmer means: Jerry, we have your shareholders on our side. Take the money, become the Chief Yahoo again and let us drive from here on out. Google is only getting stronger. We have to act now!
Given these developments, we believe now is the time for our respective companies to authorize teams to sit down and negotiate a definitive agreement on a combination of our companies that will deliver superior value to our respective shareholders, creating a more efficient and competitive company that will provide greater value and service to our customers. If we have not concluded an agreement within the next three weeks, we will be compelled to take our case directly to your shareholders, including the initiation of a proxy contest to elect an alternative slate of directors for the Yahoo! board. The substantial premium reflected in our initial proposal anticipated a friendly transaction with you. If we are forced to take an offer directly to your shareholders, that action will have an undesirable impact on the value of your company from our perspective which will be reflected in the terms of our proposal.
What Ballmer means: Jerry, I am really serious. If you don't cave in within three weeks, you will be left with kitchen scraps.
It is unfortunate that by choosing not to enter into substantive negotiations with us, you have failed to give due consideration to a transaction that has tremendous benefits for Yahoo!'s shareholders and employees. We think it is critically important not to let this window of opportunity pass.
What Ballmer means: Jerry, tell your board that I am not joking. This is not an empty threat. Either join up with us or your shareholders, employees, and users will suffer from your inaction. And by the way, Bill agrees with me.
Steven A. Ballmer
Chief Executive Office