At $45bn, Microsoft's proposal to acquire Yahoo must look like a godsend for Yahoo's beleaguered shareholders. And at a 62% premium to Yahoo's last close, Steve Ballmer is clearly hoping to deliver a 'knockout' bid that the board can't refuse.
Oh, and just in case Yahoo's 10-person board (all but one of whom are independents) think they might softpedal the approach, Microsoft released the full text of the offer letter sent by Ballmer to the board, which is definitely worth reading here. The timing is perfect, cruel but fair. Yahoo will find it difficult to resist.
In Ballmer's passive-agressive letter to the board, he berates management for failing to deliver growth after rejecting a merger with Microsoft a year ago. But what's really interesting is the extent to which this is so explicitly a defensive manoeuvre against Google and in particular its scale and capital spending capacity. Ballmer writes:
While online advertising growth continues, there are significant benefits of scale in advertising platform economics, in capital costs for search index build-out, and in research and development, making this a time of industry consolidation and convergence. Today, the market is increasingly dominated by one player who is consolidating its dominance through acquisition. Together, Microsoft and Yahoo! can offer a credible alternative for consumers, advertisers, and publishers.
For Yahoo's shareholders this is a great face-saving exit from a strategyless future. But whether the combination will in fact create a viable competitor to Google in online advertising remains to be seen.
I'm not dabbling in equities at the moment, but if I was I'd be long YHOO and short MSFT.