Was a Private Equity Bid for Yahoo Thwarted by Microsoft ?

Last week, before the Microsoft (MSFT) deal was rejected by Yahoo’s Board, some interesting chatter was bouncing around NYC.

The latest rumor to make the rounds was that Yahoo (YHOO) was just about to announce a negotiated transaction for the sale of the company to an East Coast private equity firm. Then Microsoft stepped in the way. We first heard this story sometime between Mister Softee’s $31/share, $44 billion hostile bid, and this weekend’s rejection of that offer by Yahoo as an insufficient valuation for all of Yahoo’s properties.

The rumors of this now pre-empted private bid include the following:

-to be announced as early as February 5th;
-negotiated price was in the $23-25 range;
-some Yahoo! properties to be spun out to shareholders;

Note that Microsoft has been eyeing Yahoo for several years. The latest service pack of their unrequited ardor was back in May 2007.

While this remains unconfirmed by anyone willing to make an
on-the-record statement, it is well sourced enough that I suspect
there is sat least some degree of truth to it.

There have been other publicly available evidence lending some support to the rumors:

• CEO Terry Semel, long opposed any takeover, stepped down January 31.

• The apparent urgency to enact Jerry Yang’s 100 day plan seemed to have faded rather  quickly. Putting this "Key turnaround plan" on the back burner could have been due to leaving major restructuring to the new owner.

• The suddenness of the Microsoft offer may have come about due to the PE  bid. Mister Softee’s NY lawyers and bankers likely heard rumors, or even deduced, the likelihood of a private equity bid.

• Microsoft’s bid appears to have been calculated to preempt any further bidding or acquirers from becoming involved. With Yahoo’s stock closing under $20 on January 31, a bid with a premium of "just" 25 or even 30% might have left room for another bidder.

• Microsoft appears to have taken a "time-is-of-the-essence" approach. They obviously know that each and everyday, Google’s lead widens over both companies. From both a valuation and practical perspective, Microsoft made an offer that is all but impossible for another firm to top, and facilitates the most rapid acceptance by Yahoo.


With the Writers Strike now all but settled, we still are months away from fresh television content. Until that happens, we will just have to make do watching this technology soap opera play out . . .

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  1. SINGER commented on Feb 11

    Assuming that MSFT eventually acquires YHOO at a price somewhere around the current rejected offer @ $31, the question becomes what is the investment outlook for this newlywed couple?


    I’m talking 3-5 years out…

  2. Jay Weinstein commented on Feb 11

    Mega tech mergers have a disastrous history–so the odds are against you for sure.

    BTW, Yahoo says they want $40 per share. As my teenage daughter would say, “Good Luck with that!” LOL

  3. mhm commented on Feb 11

    No matter how you look at it, MSFT higher management comes out as incompetent.

    How can they claim they can better manage YHOO if they can’t make their own web strategy work? Not even with a $45B cash stash.

    I wish it backfires. Institutional investors could ratter easily shake out Microsoft’s BOD.

  4. Ross commented on Feb 11

    As someone astutely said, if you tie two rocks together, they still won’t float.

  5. clip bartow commented on Feb 11

    how could any pe guy rationalize a t/o pe of 40-50? all cash? i don’t think so. 15%cash on a 30bn deal would leave ~25bn in debt. assuming 8% yield (and who knows these days) that’s about 2bn annual interest leaving them with nothing to spend on their business. no way that could happen. the msft deal is a gimme for yahoo; nobody will pay anything like that kind of price (twx?yeah right). the fact that yhoo ran up to 34 or so on prior t/o rumors means nothing, happens all the time. msft might tweak the deal a little, but it’s pretty hard to see how these two can make a go of it.

  6. bt commented on Feb 11

    Not buying this story Barry. If YHOO was willing to be sold for 24 – 26, it would have jumped on this offer for $31 in a newyork minute.

    Is it possible this PE offer for 24 – 26 is just another rumor aimed at getting MSFT to make its move? Which PE company has the resources and fortitude to acquire YHOO for 24 – 26 (about 35 – 38 billion dollars)?

  7. cm commented on Feb 11

    As for the writer’s strike, I didn’t see a big difference in TV content on the local cable, as it comes to quality.

  8. Eclectic commented on Feb 11

    What exactly does “cloud” mean?

    Maybe I know part of the answer, but just what is it?

    I know that the following appeals to me:

    -Being able to subscribe for a reasonable fee to a service that would end forever the software loading, debugging, updating and security problems of our technological age. I think many if not most people would agree with me. I wish my computer were merely a terminal for access to my varied virtual computing needs. I think this is a coming thing.

    However, I’m not yet impressed with online apps as substitutes for desktop software, particularly when I get a keystroke delay for inputs, or when the service I need is down, or when I have to sign off on too much liability boilerplate only for the purpose of protecting the provider from ME, its customer … or from a nosy GOVERNMENT.

    I think Google has this in mind, and now so does MSFT, albeit late to the party.

    So, my thinking is that Google and MSFT will be the two largest primary competitors for search/ad and fee-based revenue streams to produce that virtual world.

    New subject: Face

    Now, let’s talk about face. I mean the kind you lose and the kind you give.

    In a negotiation, moving the counterparty to action usually requires giving face, so that the counterparty might save face. It’s a dance, a psychological waltz.

    MSFT has already rubbed Yang’s nose in it. Can any rational person make a case that Ballmer and MSFT would yet intend to add abject ridicule to the insult?… You really think so?

    What’s the cost of face?

    My guess is, at minimum, 10%. Add the billionaire egos of these type people involved, and it might be 15% or more.

    Face is relatively easy for the winner to give. It’s difficult to accept in small quantity by the loser. Small adjustments to face (under 10%) are likely only insulting.

    Face?… 10% plus.

    Otherwise, the loser is a whipped puppy, with his tail tucked, hat in hand and subservient to the fate already announced. I just don’t see it in this case. I just don’t. I’m sure there’d be a need for face and I’m also sure there’s probably room to give it.

    What has MSFT bid in terms of marginal effort? Forget the bombasity of the “freeze, you’re under arrest” mentality of the open letter bid.

    My guess is that MSFT has offered what it considers to be something like 80-90% of its t-a-c-t-i-c-a-l maximum bid. I say tactical, not strategic.

    Tactical implies a high-energy rapid assault with a rational willingness for retreat. Let’s say tactical is 80-90% here. Then divide 31/.8 and 31/.9 for a reasonable estimate of this potential.**

    If it gets to strategic, that’s nuclear war and I’m unable to suggest a potential detonating denominator for that equation.

    **Listen, readers:

    I make NO recommendations of any sort in these comments. I assume this to be an open forum of ideas and opinions. No investment should ever be made without a very careful analysis of one’s objectives, risk tolerances and liquidity and I have no intentions of even attempting to assist any person in this regard who may read these comments on this blog. I have no earthly idea how this will end. One can only expect extreme volatility in this matter. I am merely exploring the tactics and stratagem of human emotion.

  9. pgl commented on Feb 11

    The PE offer was more than $25 a share as it allowed Yahoo shareholders to retain something. What was that something?

  10. Steve Baba commented on Feb 11

    “if you tie two rocks (Microsoft and Yahoo) together, they still won’t float.”

    I think the situation is more like:

    If we tie the two guys who finished second and third together and ask for a rematch in tug-of-war against the guy who finished first, I would bet on two guys being able to out-pull one guy.

    Which makes me wonder about any PE deal with no economics of scale. Perhaps someone in PE thought they could have run Yahoo alone a lot better.

    More at my website http://www.gstockreport

  11. John commented on Feb 14

    I agree with Ross. While a PE buyout would be a great savior for Yahoo!, there is no way a PE shop could fund it.

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