Microsoft Moves to Buy Yahoo

By Peter Galli  |  Posted 2008-02-01 Print this article Print

Yahoo was discussing a Microsoft merger as early as February 2007, Microsoft CEO Steve Ballmer confirmed, but Yahoo board members held out faith in the company's turnaround.

Microsoft has offered to pony up $44.6 billion to buy Yahoo, an offer the Internet and search company said was unsolicited, but which it did not reject.

Microsoft's bid on Jan. 31, of $31 a share, which was offered to shareholders in the form of cash or stock, was a 62 percent premium on Yahoo's share price at the close of market Jan. 31, and underscores Microsoft's determination to gain scale in the Internet advertising and development space and to more effectively compete with dominant rival Google.

In a presentation to analysts and the media on Feb. 1, Microsoft CEO Steve Ballmer noted that the online ad market is expected to grow to $78 billion in 2010, adding that a combined Microsoft-Yahoo would be better able to take advantage of that.

In a letter Ballmer sent to the Yahoo board on Jan. 31, he noted that "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."

Although he did not directly refer to Google, Ballmer noted in the letter that "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."

In his letter to the Yahoo board, Ballmer also made clear that Redmond has long been interested in Yahoo, acknowledging that he had in fact received a letter in February 2007 which said that the Yahoo board felt that was "not the right time from the perspective of our shareholders to enter into discussions regarding an acquisition transaction."

The main reason for that view was the Yahoo board's confidence in the "potential upside" if management successfully executed on a reformulated strategy based on certain operational initiatives and a significant organizational realignment. "A year has gone by, and the competitive situation has not improved," Ballmer said.

Peter Galli has been a financial/technology reporter for 12 years at leading publications in South Africa, the UK and the US. He has been Investment Editor of South Africa's Business Day Newspaper, the sister publication of the Financial Times of London.

He was also Group Financial Communications Manager for First National Bank, the second largest banking group in South Africa before moving on to become Executive News Editor of Business Report, the largest daily financial newspaper in South Africa, owned by the global Independent Newspapers group.

He was responsible for a national reporting team of 20 based in four bureaus. He also edited and contributed to its weekly technology page, and launched a financial and technology radio service supplying daily news bulletins to the national broadcaster, the South African Broadcasting Corporation, which were then distributed to some 50 radio stations across the country.

He was then transferred to San Francisco as Business Report's U.S. Correspondent to cover Silicon Valley, trade and finance between the US, Europe and emerging markets like South Africa. After serving that role for more than two years, he joined eWeek as a Senior Editor, covering software platforms in August 2000.

He has comprehensively covered Microsoft and its Windows and .Net platforms, as well as the many legal challenges it has faced. He has also focused on Sun Microsystems and its Solaris operating environment, Java and Unix offerings. He covers developments in the open source community, particularly around the Linux kernel and the effects it will have on the enterprise.

He has written extensively about new products for the Linux and Unix platforms, the development of open standards and critically looked at the potential Linux has to offer an alternative operating system and platform to Windows, .Net and Unix-based solutions like Solaris.

His interviews with senior industry executives include Microsoft CEO Steve Ballmer, Linus Torvalds, the original developer of the Linux operating system, Sun CEO Scot McNealy, and Bill Zeitler, a senior vice president at IBM.

For numerous examples of his writing you can search under his name at the eWEEK Website at


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