Microsoft CEO Ballmer’s letter to Yang Zhiyuan

May 4 news, Microsoft today announced its withdrawal from the acquisition of Yahoo, and then Microsoft’s website made public a letter from Ballmer to Yahoo CEO Jerry Yang on the matter, the following is the original letter.

Dear Jerry (Note: Jerry Yang’s English name).

It took three months, but we finally made a decision on Microsoft’s acquisition of Yahoo!

First, I would like to personally thank you, your management team and the Yahoo board for the time and attention you have devoted to this matter, and especially for the energy you have put into it. I think the decisions we have made this week have been useful and have given me the first clear understanding of what is possible and what is not.

I regret that Yahoo did not accept our takeover offer. I first proposed the merger to you back on January 31 because I believed that a merger of the two companies could create real value for our shareholders and greater innovation and opportunity in the marketplace for consumers, advertisers, and publishers. Our decision to offer a 62% premium at that time illustrates our confidence in this view.

In our conversations this week, our willingness to raise the offer price to $33 per share reinforces our sincerity about this merger. This increase would provide Yahoo shareholders with an additional benefit of $5 billion. After the increase, the value of the offer is already at a 70 percent premium to Yahoo’s closing market value on Jan. 31. But in reality, the offer is still not enough, and you ultimately insist that Microsoft pay at least $5 billion more, or an additional $4 on top of the $33 per share.

After this week’s meeting and further reflection, it is clear to me that it would be unwise to make a direct offer to Yahoo’s shareholders because such an approach would involve a proxy contest that would degenerate the transaction into a quid pro quo acquisition. Our negotiations with you have led us to conclude that the steps you have taken at this time make Yahoo a less desirable acquisition for Microsoft.

In particular, we consider Yahoo’s current plans for a “hostile takeover”, namely a partnership with Google. We believe that this approach discourages Microsoft from being interested in acquiring Yahoo for the following reasons.

First, this practice will drive advertisers to use Google as a paid search system against you in Panama, which fundamentally undermines Yahoo’s own strategy and long-term viability. It will also undermine your search advertising, exposing the advertising strategy and the environment around it. This will affect your advertising business and hinder its growth.

Given this, the move would undermine Yahoo’s strategy and long-term viability, hurt its ability to retain its engineers, and lead to regulatory and judicial problems.

On top of that, this approach would raise a number of regulatory and judicial issues that no acquirer, including Microsoft, would be willing to take on. In addition, it would allow a dominant paid search vendor to consolidate their market share and weaken market competition and choice.

This approach would also effectively give Google pricing power for search terms on its own and Yahoo’s search platforms, while raising prices for Yahoo advertisers. Beyond that, any reason to raise legal issues would be unwise from a business perspective. Unless there is anyone willing to use this as a way to get out of the search business and benefit Google.

Such a partnership would also close opportunities for mergers with other search engines that rely on Google’s search services.

Therefore, after careful consideration, we believe that an economic acquisition of Yahoo is no longer possible and that it is in the best interests of Microsoft shareholders, employees and other shareholders to exit the acquisition.

We are moving forward to continue to innovate and grow with our existing team of talented individuals. We also have the potential to develop new partners through strategic transactions.

I still believe today that our offer provided your shareholders with full and fair value for their shares. By failing to reach an agreement with us, you and your shareholders are left with a significant amount of value that cannot be realized.

But it is clear that an agreement is not possible now.

Steve Ballmer

Microsoft CEO

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