Perhaps you’ve heard by now that Steve Balmer has given Yahoo! a three-week deadline to negotiate or get assimilated. Others have done a breakdown on the letter which was published by Microsoft themselves, mostly from a smack-down perspective. Let’s look at it from a negotiation perspective instead:
April 5, 2008
Board of Directors
701 First Avenue
Sunnyvale, CA 94089
Dear Members of the Board:
Negotiation Point: This is a letter from Steve to the entire Yahoo! Board. By directing a letter from himself (and not Microsoft’s Board) to Yahoo!’s Board, Steve is pushing his personal power/status.
It has now been more than two months since we made our proposal to acquire Yahoo! at a 62% 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.
Negotiation Point: Remember that Yahoo! doesn’t want this and didn’t ask for it. Steve is implying that this is something more than an outright take-over. In other words, he’s trying to make it sound like it’s a mutual decision but that Yahoo! is simply dragging its heels.
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.
Negotiation Point: Again, Yahoo! has no desire to negotiate. Steve is attempting to reinforce the fact that Microsoft is the only company making an offer… but an offer for something you don’t want is still something you don’t want. The fact that there’s only one offer simply means it’s one more than you need. Additionally, Steve is setting the stage for later arguing to Yahoo!’s shareholders that they should vote in favor of Microsoft’s takeover bid.
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.
Negotiation Point: This is a simple positioning statement, a prelude to the potential to change their current offer (and not in a positive way). Remember again that a NEW offer for something you don’t want is no more appealing than the first.
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.
Negotiation Point: Using the power of legitimacy, Steve is attempting to convince the Yahoo! team that the offer was fair and that “anyone” in their right mind would accept such an offer.
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.
Negotiation Point: This potential negotiation is quite unique given the nature of corporate structures. The fact that Microsoft has the time, financial ability and knowledge by which to simply take Yahoo! by force, it’s interesting to see that Microsoft seems to want to complete this acquisition in an agreeable fashion. Which I would assess to be a result of knowing that Microsoft needs Yahoo!’s people as much as anything else to really extract value from this transaction. If they tick off too many of them (many of whom I’m guessing are significantly wealthy and can afford to leave if they’re not happy), they risk a mass exodus.
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.
Negotiation Point: Oh, I’m guessing that they’ve given it quite a bit of thought. And they’ve decided that they’re not interested. But by phrasing it in this manner, readers again are lead to a conclusion that Yahoo! isn’t acting in the best interests of its shareholders.
Steven A. Ballmer
Chief Executive Office