Microsoft’s proposal to take over Yahoo! to fight Google’s dominance in the online space just got more interesting. The hostile takeover bid launched by Microsoft has already received some flak from its competitor Google, which finds the multi-billion dollar deal “troubling” and has even questioned Microsoft’s intentions. On the other hand, Microsoft has maintained that the combination of Microsoft and Yahoo! would create a more competitive marketplace by establishing a compelling number two competitor for Internet search and online advertising.
Following Microsoft’s aggressive foray into owning the online search and advertising space, Steve Ballmer, in a letter to the Yahoo! Inc Board of Directors, proposed to acquire all the outstanding shares of Yahoo! common stock for per share consideration of $31, representing a total equity value of approximately $44.6 billion.
On Sunday, February 3, 2008, David Drummond, Senior VP - Corporate Development and Chief Legal Officer, Google, questioned Microsoft’s intentions on Google’s official blog. “Microsoft’s hostile bid for Yahoo! raises troubling questions. This is about more than simply a financial transaction, or one company taking over another. It is about preserving the underlying principles of the Internet – openness and innovation.”
Drummond further accused Microsoft of using its competitive advantage in the personal computer market to gain “inappropriate and illegal influence over the Internet” and said that it was likely to try to do the same if it acquired Yahoo!. He accused the company of a “legacy of serious legal and regulatory offenses”. Moreover, EU competition regulators have launched a series of probes against Microsoft, accusing it of abusing its dominant market power.
The proposal would allow Yahoo! shareholders to elect to receive cash or a fixed number of shares of Microsoft common stock, with the total consideration payable to Yahoo! shareholders consisting of one-half cash and one-half Microsoft common stock. The offer represents a 62 per cent premium above the closing price of Yahoo! common stock on January 31, 2008.
Meanwhile, arguing that the merger would create healthy competition for Google, Brad Smith, General Counsel for Microsoft on Sunday said in a written statement on the Microsoft website, “The combination of Microsoft and Yahoo! will create a more competitive marketplace by establishing a compelling number two competitor for Internet search and online advertising.”
Rubbishing Google’s allegations of becoming the largest player through the merger, Smith further said, “Today, Google is the dominant search engine and advertising company on the Web. Google has amassed about 75 per cent of paid search revenues worldwide and its share continues to grow. According to published reports, Google currently has more than 65 per cent search query share in the US and more than 85 per cent in Europe. Microsoft and Yahoo! on the other hand have roughly 30 per cent combined in the US and approximately 10 per cent combined in Europe.”
Meanwhile, it is rumoured that Yahoo! management is also considering revisiting talks it held with Google several months ago on an alliance as an alternative to Microsoft’s bid. The Internet is also abuzz with reports that the Yahoo! Board has also received a procession of preliminary contacts by media, technology, telephone and financial companies.
Whatever be the case, the ‘Big Three’ of the Internet domain are going to fight out a close battle, which will surely have major implications in times to come. The impact may not be felt in the early stages in India, but with digital playing such a huge role in our day-to-day lives and crores of rupees being put in, these deals will surely make a mark in the history of the Indian digital space.
International: Microsoft offers to buy Yahoo! for $44.6 billion; Yahoo! Board to evaluate proposal