Microsoft Yahoo Deal - No Takeover

Microsoft appears to be throwing in the towel with regards to the hostile takeover of Yahoo. In a public email transmitted to CNN and picked up by Search Engine Land too, Steve Balmer of Microsoft sent Yahoo CEO Jerry Yang the following message, ending the attempt by Microsoft to buy Yahoo to take on the number 1 search engine in the world, Google.

In a letter Saturday to Yahoo CEO Jerry Yang, Microsoft chief Steve Ballmer formally withdrew the software giant’s proposal to acquire Yahoo. - CNN

As ever, Search Engine Land was quick to pick up on the news….

Microsoft has decided to withdraw its offer for Yahoo and not pursue a hostile takeover bid, according to a letter from Microsoft CEO Steve Ballmer, just released: “Clearly a deal is not to be.” This marks an amazing turn in the MicroHoo drama. When the acquisition bid was first announced in February, it was discussed by Microsoft’s executives as though concluding the deal was only a matter of formality. (Postscript: See also Yahoo’s response and related discussion to both on Techmeme here and here).

It seemed Microsoft where particularly unhappy with the recent move by Yahoo to partner with Google, in a test, to display Google’s paid advertising network in Yahoo search results.

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!.

Wonder if they will be back…..probably.

Jerry Yang, co-founder and chief executive officer, Yahoo! Inc. added,

I am incredibly proud of the way our team has come together over the last three months. This process has underscored our unique and valuable strategic position. With the distraction of Microsoft’s unsolicited proposal now behind us, we will be able to focus all of our energies on executing the most important transition in our history so that we can maximize our potential to the benefit of our shareholders, employees, partners and users.

Steve Balmer added;

Although the acquisition of Yahoo would have accelerated our ability to deliver on our strategy in advertising and online services, I remain confident that we can achieve our goals without Yahoo.

Yeah if their aim is to be the no3 search portal in the world. For the moment, at least for us seo, there’s still 3 main sources of organic search traffic - or should that be still one - Google.

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