[tt] NYT: Eyes on Google, Microsoft Bids $44 Billion for Yahoo

[Premise Checker]

Jerry Yang, the chief executive of Yahoo, was
finishing a regularly scheduled company board meeting Thursday night
when his assistant interrupted him with an urgent phone call.

Eyes on Google, Microsoft Bids $44 Billion for Yahoo
New York Times, 8.2.2 (our 40th wedding anniversary)
http://www.nytimes.com/2008/02/02/technology/02yahoo.html

By MIGUEL HELFT and ANDREW ROSS SORKIN

SAN FRANCISCO -- Jerry Yang, the chief executive of Yahoo, was
finishing a regularly scheduled company board meeting Thursday night
when his assistant interrupted him with an urgent phone call.

It was Steven A. Ballmer, the chief executive of Microsoft, and his
message was curt. He did not call to negotiate. Microsoft would make
public a hostile $44.6 billion offer for Yahoo early Friday morning
in a bold move to counter Google's online pre-eminence.

Mr. Yang, in shock, rushed back with the news to his directors, some
of whom were getting ready to leave Yahoo's headquarters in
Sunnyvale, Calif. The board meeting was no longer over; it would
turn into a strategy session that stretched into the night.

The message that jolted Mr. Yang also jolted the technology
industry. Yahoo, founded by two Stanford graduate students, Mr. Yang
and David Filo, was once the leader of the dot-com world. But it has
been dethroned in recent years by Google, itself founded by two
Stanford graduate students.

For its part, Microsoft has struggled to compete with Google's
ever-widening lead in search and advertising as the computer world
shifts from desktop products to online software and services
supported by ads.

Each company has persistently tried to best Google but failed. "No
one can compete with Google on their own anymore," said Jon Miller,
the former chairman and chief executive of AOL, which itself is
struggling to compete in online advertising. "There has to be
consolidation among the major players. It has been a long time
coming, and now it is here."

If consummated, the deal would instantly redraw the competitive
landscape on the Internet. And it would escalate the rivalry between
Microsoft and Google, already the most intense high-stakes battle in
the technology world, over who will dominate the booming online
advertising business.

The offer of $31 a share represents a 62 percent premium over
Yahoo's closing stock price of $19.18 on Thursday, a far cry from
its peak of $118.75 right before the dot-com bubble crash. The offer
includes stock and cash and is likely to put intense pressure on Mr.
Yang and Yahoo's board, which ended earlier merger discussions with
Microsoft about a year ago.

Microsoft shares fell 6.6 percent Friday, to close at $30.45; Yahoo
rose 48 percent to close at $28.38.

Yahoo has spent billions of dollars in recent years to develop
better search and advertising technology, and started a clumsy
effort to create Hollywood-style entertainment for the Web. But
Yahoo's growth has lagged, prompting Mr. Yang, who was appointed
chief executive last summer amid growing shareholder
dissatisfaction, to announce major layoffs this week -- 1,000 of its
14,300 workers. He also warned investors that a turnaround was not
likely until 2009.

For Microsoft, the bid underscores both the company's urgency and
its determination to succeed online. "I personally thought long and
hard about this," Mr. Ballmer said Friday morning after the bid was
announced. The bid for Yahoo, he said, was "the right path."

The two companies, distant No. 2 and No. 3 players in Internet
search, previously considered combining into a more powerful force
that would have the power and audience to take on Google, No. 1 by a
wide margin in both Internet search and online advertising.

Mr. Ballmer met several times in late 2006 and early 2007 with Terry
S. Semel, then Yahoo's chief executive, people involved in the talks
said. After a series of secret meetings between the sides in hotels
around California and elsewhere, Yahoo's board decided against
progressing with the talks, betting that its stock would turn
around, these people said. Mr. Yang, in particular, was adamantly
against selling the company, they said.

Mr. Ballmer constantly consulted with Bill Gates, Microsoft's
chairman. Then this week teams of bankers and lawyers holed up in
two low-slung podlike buildings on Microsoft's campus plotted how
much to bid. After Yahoo reported weaker-than-expected earnings on
Tuesday and its stock fell, Microsoft, which had been considering a
bid in the mid-$30 range, settled on $31 a share. "A year has gone
by, and the competitive situation has not improved," Mr. Ballmer
wrote in Thursday's letter to the Yahoo board. Yahoo said Friday
that its board would evaluate Microsoft's bid "carefully and
promptly in the context of Yahoo's strategic plans."

Analysts say few companies, other than Google, would have the
resources to compete with Microsoft's bid. On Friday, Yahoo's
bankers -- Goldman Sachs and Lehman Brothers -- were canvassing
behind the scenes for other suitors, putting out feelers to the
likes of News Corporation, AT&T and others.

And Google is not likely to enter the fray because of probable
antitrust objections. A Google spokesman said Friday that it would
be "premature to comment."

The proposed merger, if accepted by Yahoo's board, could bring
renewed antitrust scrutiny of Microsoft, which spent years in court
battling the Justice Department.

Even if it is ultimately approved, the deal could face lengthy
delays. It took the Federal Trade Commission nearly nine months to
clear Google's far smaller proposed buyout of the advertising
specialist DoubleClick. That deal, announced in April, remains under
review in Europe.

"This is an order of magnitude larger and will require much more
scrutiny and data," said Carl W. Tobias, the Williams professor at
the University of Richmond School of Law, in Virginia. Professor
Tobias said, "Obviously Google will try to weigh in and try to
persuade regulators that it does raise serious questions."

A Microsoft-Yahoo merger would give Web publishers and online
advertisers "a more competitive and compelling No. 2" to Google,
thus enhancing competition and consumer welfare, said Bradford L.
Smith, Microsoft's general counsel.

The combination of Yahoo and Microsoft would create a more powerful
counterweight to Google. Yahoo's audience, already the largest on
the Internet, would be bolstered by the tens of millions of users of
Microsoft's services, creating a much larger online display
advertising business. In Internet search, the market share of the
two companies would rise to 31 percent of the American market,
according to comScore. That would still be far below Google's 58
percent share, but would help the companies attract more advertisers
and higher prices for ads.

Microsoft executives said the merger would provide it with more
engineering talent and technology infrastructure, and would result
in annual savings of $1 billion.

The combination will also bring Microsoft relationships with a long
list of publishers and advertisers, bolstering the company's quest
to become a leading seller of ads not only on its site, but on sites
across the Web.

Microsoft, which paid $6 billion last year for the online
advertising specialist aQuantive, already sells ads on popular sites
like Facebook and Digg, as Yahoo does on eBay, Comcast and the sites
of hundreds of newspapers. Google, for its part, beat out Microsoft
for deals with MySpace, AOL and others. The challenge of integrating
the two companies could well become one of the most complex
undertakings in Microsoft's history. "In the world of mergers and
acquisitions, this is as tough as it gets," Mr. Yoffie added.

In an interview, Mr. Ballmer acknowledged that a merger review and
the integration of the two companies would take time, but he said
that Microsoft would keep forging ahead in the meantime.

"We'll keep the pedal to the metal," he said. "I assume Yahoo will
keep the pedal to the metal."

Miguel Helft reported from San Francisco and Andrew Ross Sorkin from
New York.