Juan Carlos Perez, IDG News Service

In the end, the undoing of Microsoft’s bid for Yahoo. While the main reason Microsoft dropped its bid was a disagreement over price.

At least, that’s what Microsoft CEO Steve Ballmer maintains. As outlined in the letter he sent Saturday to his Yahoo counterpart, Jerry Yang, Microsoft discarded the option of a hostile takeover when Yahoo threatened to outsource part of its search advertising to Google.
Deriding the Google Factor

“We regard with particular concern your apparent planning to respond to a ‘hostile’ bid by pursuing a new arrangement that would involve or lead to the outsourcing to Google of key paid Internet search terms offered by Yahoo today,” Ballmer wrote. “In our view, such an arrangement with the dominant search provider would make an acquisition of Yahoo undesirable to us for a number of reasons.”

It’s fair to assume that Ballmer’s hatred for the search giant grew this weekend.

An outsourcing deal would send a confusing message to Yahoo advertisers and prevent Yahoo from offering clients the benefits of a unified platform for both display and search advertising, Ballmer wrote.

He states convincingly that engineers working on Yahoo’s ad systems would head for the door, and that regulatory and legal problems would rain down on Yahoo and any company that acquired it.

“Accordingly, your apparent plan to pursue such an arrangement in the event of a proxy contest or exchange offer leads me to the firm decision not to pursue such a path,” Ballmer wrote.
Playing the Spoiler

[Source: Yahoo News]

SAN FRANCISCO (Reuters) - Yahoo Inc (YHOO.O) has three weeks to accept Microsoft Corp.’s (MSFT.O) $31 per share cash-and-stock offer or Microsoft will mount a proxy battle to win investor support for the takeover, Microsoft said on Saturday.

Microsoft Chief Executive Steve Ballmer said in a letter dated April 5 and addressed to Yahoo’s board of directors that “now is the time” to negotiate final terms of a deal, one which would mark the biggest takeover yet in the high-tech industry.

“If we have not concluded an agreement within the next three weeks, we will be compelled to take our case directly to your shareholders, including the initiation of a proxy contest to elect an alternative slate of directors,” Ballmer wrote.

A Yahoo spokeswoman was not aware of the letter and would not immediately comment on Yahoo’s reaction to the move.

Ballmer said Microsoft is growing impatient more than two months after the Redmond, Washington-based software behemoth made its unsolicited takeover offer for Yahoo. At that time, the bid represented a 62 percent premium to Yahoo’s share price.

“While there has been some limited interaction between management of our two companies, there has been no meaningful negotiation to conclude an agreement,” Ballmer wrote.

The Microsoft letter argues that the economy and the market for Internet stocks have deteriorated in the intervening period, and that Yahoo’s share of Web search and online advertising business has declined, referring to industry market reports.

“During these two months of inactivity, the Internet has continued to march on, while the public equity markets and overall economic conditions have weakened considerably,” Ballmer wrote.

Meanwhile, Yahoo has adopted measures that make a merger with Microsoft more costly, Ballmer complained.

(Reporting by Eric Auchard in San Francisco and Daisuke Wakabayashi in Seattle, editing by Philip Barbara)

By MADLEN READ, AP Business Writer
NEW YORK - Wall Street fell in temperamental trading Monday as investors grappled with news of JPMorgan Chase & Co. buying the stricken Bear Stearns & Co. in a deal backed by the government. The Dow Jones industrials, down nearly 200 points in the early going, fluctuated into positive territory and then pulled back again.
A buyout of Bear Stearns was certainly more appealing than the alternative: letting the investment bank collapse and causing huge losses for anyone linked to it.

And some unprecedented moves by the Federal Reserve gave the market a bit of solace on what many predicted would be a day of precipitous losses in the stock market.

Besides supporting the buyout, the Fed lowered the rate it charges to loan directly to banks by a quarter-point on Sunday night — two days before its scheduled meeting Tuesday. The central bank also set up a lending option for firms, including many non-bank financial services firms, to secure short-term loans for a broad range of collateral.

“This removes the risk of further slides for these companies, the risk that a Bear Stearns incident would happen again,” said Robert Pavlik, portfolio manager at Oaktree Asset Management.

The Fed appears to be pledging to do everything in its power to keep the credit crisis from destroying the financial industry and the economy. Policy makers at the central bank are expected to reduce the target fed funds rate — the rate banks charge each other for overnight loans — by at least a half-point on Tuesday, and perhaps even a full point.

Still, the market remained extremely volatile, and a steeper drop Monday was still quite possible. The sale of Bear Stearns — and the fact that JPMorgan valued the fifth-largest Wall Street investment bank at a minuscule $2 a share, or $236 million — stirred fear among investors worldwide about other banks’ exposure to the troubled credit markets.

“You’re going to have some very weak players pushed out of business,” said Joseph V. Battipaglia, chief investment officer at Ryan Beck & Co. He said JPMorgan’s buy of Bear Stearns and Bank of America Corp.’s acquisition of mortgage lender Countrywide Financial Corp. are probably not the only rescues the industry will witness during this credit crisis.

The Dow fell 76.04, or 0.64 percent, to 11,875.05, after briefly venturing into positive territory.

Broader indexes also fell in choppy trading. The Standard & Poor’s 500 index fell 17.39, or 1.35 percent, to 1,270.75, while the Nasdaq composite index fell 34.22, or 1.55 percent, to 2,178.27.

JPMorgan, one of the Dow components, rose $3.55, or 9.7 percent, to $40.09. The Fed essentially guaranteed JPMorgan that it would backstop any risk involved in taking over the 85-year-old Bear Stearns, which has 14,000 workers worldwide.

Bear Stearns shares fell 86 percent to $4.20 — still above the buyout price, implying that some shareholders believe the deal terms might change. About one-third of Bear Stearns stock is held by its employees.

Bond prices rose as stocks fell. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3.34 percent from 3.44 percent late Friday.

The dollar sank to a record low against the euro and hit a 12 1/2 year low against the yen, while gold prices surged to another record high.

Light, sweet crude dropped $2.47 to $107.74 per barrel on the New York Mercantile Exchange, after rising to nearly $112 a barrel in premarket trading.

The pain for investors in Bear Stearns, which succumbed to losing bets on souring mortgages for borrowers with poor credit, will be sizable. JPMorgan is buying Bear, including its midtown Manhattan headquarters, for about 1 percent of the investment bank’s worth little more than two weeks ago. Bear Stearns’ buyout arrives after a short-term bailout Friday that JPMorgan led and that the Fed backed.

The market’s concern wasn’t limited to the Bear sale. DBS Group Holdings Ltd., a large bank based in Singapore, instructed traders via e-mail Monday to disregard an earlier e-mail barring new transactions with Lehman Brothers Holdings Inc., according to Dow Jones Newswires. Earlier Monday, DBS emailed traders and said not to engage in new transactions with Lehman or Bear, according to two people familiar with the situation, Dow Jones reported.

Lehman fell $9.41, or 24 percent, to $29.85.

This week, Lehman and other major investment banks are slated to report quarterly results. Investors will likely be focusing on comments from the companies for insights about their financial well-being.

While investors were focused on the financial sector, fresh economic news offered little solace. The Fed said output at the country’s factories, mines and utilities fell by 0.5 percent in February, the biggest decline last October. Many analysts had been expecting a slight increase of one-tenth of one percent.

The Commerce Department also said Monday the broadest measure of foreign trade fell slightly in 2007 as stronger growth in U.S. exports helped make up for a spiking foreign oil bill. The deficit in the current account, which covers not only goods and services but also investment flows between the United States and other countries, dropped by 9 percent last year to $738.6 billion.

Declining issues outnumbered advancers by 5 to 1 on the New York Stock Exchange, where volume came to 619.9 million shares.

The Russell 2000 index of smaller companies fell 10.65, or 1.61 percent, to 652.25.

Overseas, Japan’s Nikkei stock average fell 3.71 percent, while Hong Kong’s Hang Seng index fell 5.18 percent. In afternoon trading, Britain’s FTSE 100 fell 2.32 percent, Germany’s DAX index dropped 3.29 percent, and France’s CAC-40 lost 2.52 percent.

By MICHAEL LIEDTKE

SAN FRANCISCO (AP) — Google Inc.’s long-anticipated acquisition of online ad service DoubleClick Inc. is expected to turn the Internet search leader into an even more powerful marketing vehicle that’s fueled by better insights about consumers.

The $3.1 billion deal, completed Tuesday after nearly a year of regulatory wrangling, also may intensify the pressure on Microsoft Corp. and Yahoo Inc. to resolve their stormy courtship so they don’t risk further distractions while Google tries to sprint further ahead in the race for Internet advertising.

Google took control of DoubleClick a few hours after Europe’s antitrust regulators removed the final stumbling block by approving a deal that was first announced 11 months ago.

U.S. regulators cleared the transaction in December, casting aside objections from Microsoft and other companies that argued DoubleClick would give Google too much control over online advertising and potentially sensitive information about consumer behavior on the Internet.

Besides opening up new opportunities, Google’s takeover of DoubleClick will create more challenges for a management team already grappling with concerns about how the slowing U.S. economy will affect the company’s earnings growth this year.

Google Chairman Eric Schmidt acknowledged in a statement that the biggest acquisition in the company’s 9 1/2-year history probably will trigger an unspecified number of layoffs after years of relentless hiring. The looming job cuts will be concentrated in the United States, although Schmidt said offices in other countries could be affected.

New York-based DoubleClick has 1,500 employees with offices in France, England, Germany, Ireland, Spain, Australia and Spain. Mountain View-based Google employs nearly 17,000 workers, up from 1,600 just four years ago.

Google’s recently slumping shares soared with the rest of the stock market Tuesday, gaining $26.22, or 6.3 percent, to $439.84. The company’s stock price remains down by 36 percent so far this year.

DoubleClick is expected to broaden Google’s already extensive reach in the $40 billion Internet advertising market.

Google has been the market’s most dominant player so far, generating more than $16 billion in revenue last year. Most of the money flowed in from short, written ads that Google places alongside search results and other Web content.

DoubleClick specializes in placing more dynamic, multimedia ads, a form of marketing that is expected to become more important in the next few years as big companies spend more money promoting their brands online.

With somewhere between $300 million and $400 million in annual revenue, DoubleClick isn’t expected to have a significant impact on Google’s profit this year.

But the addition is bound to give Google an important advantage over its rivals, said Russ Mann, chief executive of Covario, which helps manage and analyze online advertising campaigns.

“Google is going to be like a runaway locomotive coming full steam ahead now,” Mann said.

Standard & Poor’s equity analyst Scott Kessler isn’t convinced the deal will pay off for Google as quickly as some might think, largely because the company doesn’t have a track record of mining big profits from its past acquisitions. For instance, Google paid $1.76 billion for online video leader YouTube in November 2006, but the site still isn’t producing significant profits.

“It’s definitely a big deal, but whether they can execute on the potential remains to be seen,” Kessler said.

But just the prospect of Google growing even stronger now that DoubleClick is in its fold could be enough to prompt Microsoft to step up its pursuit of Yahoo or withdraw its offer to spend the money on other expansion opportunities.

“Everyone knew the (DoubleClick) deal was coming, but (the consummation) probably contributes a degree of urgency because now it is real,” Kessler said.

Microsoft has offered to buy Yahoo for more than $40 billion, but the unsolicited bid has been at a standstill for the past month because the two sides can’t agree on a price.

Both Microsoft and Yahoo had opposed Google’s acquisition of DoubleClick, arguing that it could stifle competition in the online advertising market and potentially compromise consumer privacy.

Microsoft declined to comment Tuesday. Yahoo didn’t immediately respond to requests for comment.

Google’s pursuit of DoubleClick had a domino effect almost as soon as the two companies announced their marriage plans last April. Within a few months, Microsoft, Yahoo and Time Warner Inc.’s AOL had spent more than $7 billion snapping up other online ad networks and tools to mount a counterattack.

Besides helping Google build a one-step shop for advertisers and Web publishers, DoubleClick also brings a wealth of information about consumer behavior accumulated through years of tracking online surfing.

Coupled with the knowledge Google has gleaned from analyzing its users’ search requests, DoubleClick’s data will provide an even better understanding about what appeals to each individual consumer.

Google, which has embraced “don’t be evil” as its motto, has pledged to vigilantly guard the information. Management believes the data will lead to more relevant and less annoying ads, making the Internet more enjoyable.

“We will be able to help publishers and advertisers generate more revenue,” Schmidt wrote. “That in turn will fuel the creation of even more rich and diverse content for Internet users everywhere.”

But consumer watchdogs are worried about too much power — and information — being concentrated at a single company.

The Center for Digital Democracy, a privacy advocate, said regulators’ failure to impose safeguards had “helped strengthen a growing digital colossus that will now be in a dominant position to shape much of the global future of the Internet.”

AP Business Writer Aoife White in Brussels, Belgium, contributed to this report.

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