In a rally-the-troops e-mail, a senior Microsoft executive explained the benefits of acquiring Yahoo and swatted aside concerns about disparate corporate cultures and technologies.
However, Kevin Johnson, president of Microsoft’s Platforms & Services Division, stopped short of saying what Microsoft’s next step would be to buy Yahoo in an e-mail to employees Feb. 22.
Microsoft on Feb. 1 offered to buy Yahoo for $44.6 billion, an offer the Internet software specialist rejected Feb. 11 because it said the bid undervalues the company. Microsoft vowed to pursue Yahoo and the company is reportedly preparing for a proxy fight. But so far it has not publicly made any moves in that direction.
Johnson wrote that although the company does not have an agreement with Yahoo, we “look forward to a constructive dialogue with Yahoo’s board, management, shareholders and employees” because the original $31 per share offer is “full and fair.”
Johnson said Microsoft would become a more powerful competitor to Google in search and online advertising, Johnson argued, noting that the online ad market could be worth $80 billion by 2010.
Johnson claimed top executives of major media companies have told him there needs to be more competition in search and online advertising to stimulate innovation. A combination of Microsoft and Yahoo would give the company a better leg to stand on in search, video, mobile, commerce and social media, he wrote.
In an appeal aimed as much at Yahoo employees as Microsoft staffers, Johnson wrote “people are the single most important asset in this combination” and that “we will dedicate significant rewards and compensation to Yahoo and Microsoft employees.” He allows that overlap is expected in any combination of this magnitude.
The executive also moved to dispel questions about the company’s having different cultures, noting that both companies share a passion for great engineering, creativity, and development of services and technologies.
He also called it “premature” to speculate how Microsoft would brand combined offerings, and did not say whether or not the company would jettison certain Yahoo assets that may overlap. For example, many analysts have wondered what Microsoft might do with Yahoo’s Zimbra assets, which compete with Microsoft Office and SharePoint.
Integration Not a Problem
To that end, Johnson dismissed the belief that the companies’ disparate technology platforms would be problematic to integrate, saying that Microsoft has acquired vendors that employed both Windows and open-source technologies.
Much of Yahoo’s current infrastructure is built with PHP and other languages, while the lion’s share of Microsoft’s code is Windows-based. Some analysts have said juggling multiple technologies would be difficult.
“Although Windows is our strategic platform and in some cases the teams ultimately migrated their products to Windows for a variety of reasons, in other cases we have prioritized continuity and have used open interoperability mechanisms to achieve effective systems integration,” Johnson said, which is a reference to the company’s recent moves to show programmers its code.
Regarding Yahoo employees concerned about being uprooted from the headquarters in Sunnyvale, Calif., to the one in Redmond, Wash., Johnson said Microsoft would “absolutely” maintain locations in both. Microsoft hosts 1,800 employees in Silicon Valley.
However, Johnson also had a warning to employees with loose lips, noting that Microsoft employees should not speculate with Yahoo employees about the proposal and that no Microsoft employee should reach out to Yahoo employees for “integration planning unless specifically instructed to do so by the integration team.”
Johnson added that “if and when” Yahoo agrees to proceed with the proposed transaction, Microsoft will seek regulatory approval and shoot to close the deal in late 2008.
Meanwhile, the value of the deal has sagged to $41 billion or so, thanks to a dip in Microsoft’s stock and Legg Mason investor Bill Miller’s statement that Yahoo is worth closer to $40 per share.
Some experts believe Microsoft will launch a proxy fight to avoid triggering Yahoo’s poison pill, which would flood the market with additional shares to dilute any holdings Microsoft could acquire from mass investor sell-offs.