Microsoft bidding with Silver Lake for minority stake in Yahoo

By Tom Warren, on 29th Nov 11 12:19 am with 31 Comments

Microsoft is reportedly bidding with a consortium of investors, led by Silver Lake, to take a minority stake in Yahoo.

The software giant previously signed an NDA last week to take a closer look at Yahoo’s finances. Microsoft is expected to provide billions of dollars in financing as part of the consortium to Yahoo. The deal would see Microsoft take a minority stake of up to 20% in Yahoo. Recent rumors from October suggested that the software giant was considering a partnership deal with Yahoo. The partnership deal was working into a full blown acquisition according to The Wall Street Journal, who reported in October that Microsoft was working with the Canada Pension Plan Investment Board and Silver Lake Partners, a private equity firm, to ready a bid to acquire Yahoo. Deal Book reports that Yahoo is still considering bids for the entire company.

Microsoft CEO Steve Ballmer recently revealed that Microsoft was “lucky” not to buy Yahoo back in 2008. “You know, times change, times change,” said Ballmer. “The market really kind of fell apart. Sometimes you’re lucky,” he added. Microsoft famously offered $44.6 billion cash-and-stock to purchase Yahoo in February, 2008. The deal was an intense one for both parties, valuing Yahoo’s stock price at $31, a significant premium on its true value at the time. Despite the offer, Yahoo declined and wanted more cash. Microsoft upped its offer to $33 a share but Yahoo believed the company was worth $37 per share.

The failed deal surfaced as a search deal between Bing and Yahoo. Microsoft secured a 10-year deal in July 2009 to push Bing as the exclusive algorithmic search and paid search platform for Yahoo! sites. The agreement ended Microsoft’s talks with Yahoo which had lasted nearly two years. Yahoo has failed to make an impact with its various web properties, despite acquiring popular photo sharing site Flickr. The once popular web portal and search engine has struggled against Google and Facebook in the new world of social networking.

Microsoft announced an online advertising deal with AOL and Yahoo to sell premium online display inventory earlier this month. The agreement will allow each network to offer each other’s premium non reserved online display inventory to advertising customers. Microsoft, Yahoo and AOL will all continue to operate their core networks and advertising separately but the partnership will benefit advertising customers wishing to buy up inventory across all the sites.

  • Guest

    There’s goes another $5 billion.

  • ……..

    FIRST…and yes i do care

    • OctalMan

      aaaaaw, want a cookie?

    • ……..

      sure

    • Guest

      First. Can I have your cookie?

    • Anonymous

      You do realize that comments are sorted by likes, which makes being “First” pretty much pointless.

  • http://twitter.com/LachlanCMcLeod Lachlan C McLeod

    Good call.. they are integrating their services with Yahoo so it makes sense to invest some money with them because your helping them make money..  Also, they could be thinking about using yahoo as the local search for some countries where bing is not yet ready for all the services.. (Bing Finance in Canada for example where Yahoo Finance Canada is way better)..

    • http://www.twitter.com/wixostrix WixosTrix

      That is exactly what they should be doing.

    • Guest

      The Yahoo alliance had already cost MS a bundle and performed below everyone’s expectations, including MS and Yahoo’s. There may be some side benefit here like getting a board seat and having more say in what Yahoo does, or perhaps Yahoo taking on some more MS services beyond search (Skype, Azure?). But let’s not put lipstick on a pig. This is MS having to spend probably another $4B+ to secure what they thought they had already paid a lot of money to secure.

  • Anonymous

    I’m sorry, but this is an incredible waste of money in a dead company. Don’t be a fool Ballmer.

    • Guest

      “Don’t be a fool Ballmer”

      Oxymoron.

    • http://twitter.com/sageisfree Sage is Free

      What part of “Minority Stake” you don’t comprehend ?

      Yahoo may not be very valuable as a whole, but they do have millions who use their Mail-Messenger. Then they have many services that Bing is missing. Also they have great sites like Flickr Del.ici.ous..

      Lastly they should also have lots of patents. 

      This minority stake will help Microsoft prevent Google from getting that and make it easier for Microsoft to buy these valuable fragments of Yahoo.

    • Guest

      “Minority stake” is not necessarily inconsistent with “waste of money”. So can the condescension.

      Yahoo is actually quite valuable if sold off in pieces. But MS would be investing primarily to prevent that. There might still be a reasonable business case to support an equity investment, but beyond speculating about what some of that might include, you haven’t presented any quantifiable argument to support that. The OP didn’t present one for his opposing view either, but so far the record of actual financial returns for Bing and Bing+Yahoo is overwhelmingly on his side.

  • http://www.elmsoftware.com elmsoftware

    I am not for this.  This will drain a lot of their cash and make them weaker.  Apple executives will rejoice at this for a fact.  They need to get refocused and work on making great software…that is what they do, that is their specialty, that is their core skill.  Adding a news site with hundreds of random pages and sites will drive traffic but internet traffic can be like a flock of birds, it comes and goes.  Yahoo’s revenue has gone down for three years, their profit has gone up.  With that said, it splinters Microsoft’s ability to focus.  Their keynote speeches will be everywhere which to me is turning them into a jack of all trades/ master of none.  I like how their Metro interfaces are coming together (Windows 8, Windows Phone, Xbox).  Their cloud (SQL Azure is awesome) strategy is pretty good.  I do not believe that Yahoo! is a best fit.  Also, quit associating yourself with crap like laptop fans http://www.amazon.com/Microsoft-Z3C-00001-Notebook-Cooling-Black/dp/B0021ZEHQU.  They need to focus and improve upon their great products.

    • Anonymous

      20% of $20 bn is only 4 bn so it’s not really draining alot of cash it’s only half of what they paid for Skype.

      And if this secures a continued partnership in search and advertisement it’s a good move.

    • Guest

      With a buyout premium you’re probably looking at more than $20 (it’s trading at $19+ now). But I’m not following the logic of how comparing it to Skype, a company that has never been profitable and that many believe MS grossly overpaid for, somehow justifies it? Also, why is securing the current partnership a good move? So far the now three year old partnership hasn’t increased joint share versus Google, nor has it slowed losses for MS.

    • Anonymous

      The premium won’t be too big on a company in Yahoo’s state.  It’s trading at around 19bn now and that’s after a month of buyout rumors, the stock price was at around $13 last month, and now it’s at  $15.35.

      Wether or not they overpaid for Skype doesn’t matter, the purchase of Skype can be defended in many ways, economically it was a HUGE brand and it helped them “move money” from EU to the US.

      Securing the current partnership is a big deal because without it Bing would be at 15% not 30%.

    • Guest

      @zicoz:disqus 

      Don’t bet on that:

      http://greenbackd.com/2011/11/10/jackson-on-how-a-cash-rich-split-could-take-yahoo-to-41share/

      It depends on whether multiple bidders emerge and price rises closer to max actual value versus current market value. 

      Re Skype, overpaying for an asset always matters. MS is a business. Every investment made is another foregone. $8.5 billion for a serially unprofitable company makes it very difficult to later recoup the investment. WebTV had a big name once too.  And not sure what you mean by moving money from the EU to the US? Part of the deal’s attractiveness to MS was that Skype was in EU and the money was already there.

      The partnership was already secured at high cost. This would be paying a lot more money to re-secure it. It’s one thing to make an investment, without experience, based on the hope that Y+M might = YM^2. But it’s another thing entirely to invest even more later, once you’ve already seen that several years of effort has only yielded <Y+M.

    • Guest

      Ballmer has two choices: let Yahoo get sold off and admit that the $8 billion he’s lost so far (directly, even more if you count acquisitions) was in vain and Bing will never be viable. That will get him tossed as CEO, guaranteed. Or he can spend another $4-5 billion to keep the partnership in place and buy himself another couple years as CEO to try and make it work. Which do you think he’s going to choose?

  • Anonymous

    This is a horrible idea for what 8 billion dollars is MS blind or something if I was CEO I would put that money into making sure the MS provides absolutley the best services possible. For example- Zune has the potential to be the #1 Music Marketplace in the world. With Zune Pass and the ability to have unlimited downloads for 9.99$ a month damn with the money MS can invest in Zune it could take that position have it the #1 service for music and movie downloads/rentals
    - Xbox Live its growing but you never know when PSN is going to catch up. When your in the lead go nuts and blow away your competition there is soo much more to do with Xbox live to make it a WAY better gaming social networking platform
    - Skype has the potential to replace phones at home and at corproate offices MS make this happen
    - Bing and Tellme could be a deadly one-two punch when it comes to search or helping somebody get through their day
    - Office and Skydrive could also be a alot better

    In 3 – 5 years why would somebody buy an iPhone VS WP VS Android to me its not about the software or hardware at that point software will reach a certain limit but IMO its the services that the company provides which would make consumers make their decisions. If consumers love the Zune, Xbox, Skype, Office platforms they will continue using WP and not go towards something else. Same thing kind of goes with Apple and Android but Apple and Androids ecosystem isn’t as big as MS so MS blow them out of the competition. Focus on making your services #1 instead of buying a bad investment!

    • Anonymous

      And you didn’t mention Kinects once. How did that happen??

    • Anonymous

      Are you saying Kinect is a bad investment?

    • http://circuitsoft.tumblr.com CircuitSoft

      XBOX Live is growing and is the largest game network out there. PSN will never catch up with its Suckurity. The Kinect and the Kinect Effect are awesome. Yesterday, I saw a commercial advertising the next dashboard coming December 6th.
      Skype replaces phones and contact for businesses. All that we need is the ability to call 911.
      Bing and TellMe are already integrated and MS is integrating them in all their products.
      Office and Skydrive are better together. They are integrated.
      Don’t worry Microsoft knows what it is doing. You are the consumer and the controller. Now buy something from MS!

    • Anonymous

      You never know with Sony what if they partner up with Android and create a platform that can compete. Skype can replace phone for business and personal but when how long will it take will somebody get there first who knows. Bing and Tellme are integrated but are beaten by their competition Google and Siri will Bing and Tellme ever catch up or when they do is it already too late.

      MS has everything in place but everybody knows MS takes their sweet time and by the time they release APL and Google might beat them too it and take away that marketshare. As a consummer I workspace Windows, Mobile Windows, Livingroom Windows everything I have is pretty much MS because I believe in their ecosystem (I used to be Apple). Dont just put out a product like Zune Pass, Skype, Skydrive etc just to say we have it take those products to the next level dont just keep buying things improve the assests you already have and make sure the services you have are the best in the market.

      What is Yahoo going to do to help MS? I have no idea if somebody can fill me in I am all open to hearing from it but IMO 8 billion can speed things up alot faster.

    • Guest

      You make a lot of valid points. A huge battle is going to take place for the living room. And while Sony can’t be ignored, the real competition is likely going to come from Google and Apple. Right now I see a lot of over confidence from MS and some fanboys. You hear a lot of “there’s 50M installed units” and “Xbox owns the US”. But let’s remember that Nintendo has outsold Xbox this generation, and Sony leads in both EU and Asia and is close to catching up in unit sales worldwide despite starting a year later. I remember a similar arrogance and overconfidence in mobile and tablets, right before MS lost a decade head start in both markets to Apple and Google in the space of just two short years.

    • Anonymous

      The fact is I am sure RIM, Google and Apple really want MS out of the game and they will do everything to kick them out of there. Its pretty much a 3 on 1 right now RIM even annouced a Mobile Fusion corproate application so their server can securely handle Android, and iOS but no WP.

      What if RIM releases BBM on Android and iOS and not WP. MS back against the wall right now is Yahoo going to save them? Maybe Skype will but come on Yahoo?

    • Jinge

      I agree, with 8b they could hire many developers for years to improve some products which are good but which can really be improved! WinPh, Bing abroad,IE, mediaplayer, zune, messenger, skype integration or even W8! They really could do something great with all their money!

  • http://circuitsoft.tumblr.com CircuitSoft

    Yeah! Now Microsoft can transfer everyone I’ve tried to convince to switch to Hotmail from Yahoo! Mail. Please MS, I don’t my family members to be out of date!

  • http://twitter.com/AustinWilkes Austin Wilkes

    Horrible idea. A mature company that is not a cash cow is a dog. Dogs will stay dogs the vast majority of the time. 

  • http://twitter.com/AustinWilkes Austin Wilkes

    Sneak a homepage change to msn.com via Windows Update for all users born before 1965 and accomplish the same thing without the multi billion $ cost

  • Anonymous

    Stop being ignorant about Yahoo. In certain populated parts of Europe Yahoo Messenger with its BUZZ! and Yahoo Mail own the entire population. For MS that wants to expand its Hotmail, Bing and Live Messenger Yahoo is a very important asset. Even if it would be technically a loss supporting Yahoo, it will still prove to be a valuable investment in the long run.