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]

By MICHAEL LIEDTKE, AP Business Writer

SAN FRANCISCO - Microsoft Corp. withdrew its $42.3 billion bid to buy Yahoo Inc. on Saturday, scrapping an attempt to snap up the tarnished Internet icon in hopes of toppling online search and advertising leader Google Inc.

The decision to walk away from the deal came after last-ditch efforts to negotiate a mutually acceptable sale price proved unsuccessful.

The talks reached a breaking point after Jerry Yang and David Filo, the co-founders of Sunnyvale-based Yahoo, flew to Seattle in the morning to meet personally with Microsoft Chief Executive Steve Ballmer and Kevin Johnson, who runs the software maker’s unprofitable online services division, according to someone familiar with the talks. The person was not authorized to speak publicly and asked not to be identified.

“Clearly a deal is not to be,” Ballmer wrote to Yang in a letter sent late Saturday.

Microsoft was willing to pay $47.5 billion, or $33 per share, up from the bid’s current value of $29.40 per share, according to Ballmer’s letter.

But Yahoo’s board demanded at least $53 billion, or $37 per share, according to Ballmer. That would have been nearly double Yahoo’s stock price of $19.18 at the time Microsoft first made its bid a little over three months ago.

And Yang, who became Yahoo’s CEO 11 months ago, wanted $38 per share in a Wednesday meeting, according to the person familiar with the discussions. That meeting was held the day after Yang and Yahoo Chairman Roy Bostock called to ask Microsoft not to withdraw its bid, the person said.

In a statement Saturday, Bostock reiterated that Microsoft had undervalued his company’s assets since the takeover tug-of-war began more than three months ago.

“We remain focused on maximizing shareholder value and pursuing strategic opportunities that position Yahoo for success and leadership in its markets,” Bostock said.

The anticlimactic ending came as a surprise, given that many analysts believed Microsoft wanted to close the deal badly enough to pursue a hostile takeover — a risky maneuver that would have required an attempt to replace the Yahoo board that spurned rejected the bid.

Although he had threatened a hostile takeover attempt last month, Ballmer said he concluded that waging a so-called proxy battle was “not sensible.”

“Our discussions with you have led us to conclude that, in the interim, you would take steps that would make Yahoo undesirable as an acquisition,” Ballmer wrote to Yang.

But Yahoo hasn’t necessarily faded from Microsoft’s cross hairs.

The software maker conceivably could renew its bid later this year if Yahoo can’t bounce back from more than two years of financial lethargy.

Should Yahoo’s turnaround efforts flop, many analysts believe the company’s stock would sink into the mid-teens and open the door for another takeover offer that would be more difficult to rebuff.

For now, at least, Microsoft appears to believe it has enough internal weapons to chip away at Google’s dominance of the booming Internet ad market.

“We have a talented team in place and a compelling plan to grow our business through innovative new services and strategic transactions with other business partners,” Ballmer said. “While Yahoo would have accelerated our strategy, I am confident that we can continue to move forward toward our goals.”

Microsoft’s move intensifies the pressure on Yang to reverse the lackluster growth that has eroded Yahoo’s profits and depressed its stock price since 2005, making it vulnerable to an unwanted takeover.

Yang has projected that Yahoo’s revenue will rise by 25 percent in 2009 and 2010, propelled by an expanded Internet advertising network that’s using more sophisticated tools to target consumers.

But analysts haven’t raised their forecasts to anywhere near Yang’s predictions, reflecting doubts that may trigger a rebellion among Yahoo’s restive shareholders if it looks as if management isn’t delivering on its promises.

Yang, who started Yahoo with Filo in 1994 while they were graduate students at Stanford University, embraced the challenge in a Saturday statement.

“With the distraction of Microsoft’s unsolicited proposal now behind us, we will be able to focus all of our energies on executing the most important transition in our history,” he said.

As part of its efforts to fend off Microsoft, Yahoo had been exploring a possible advertising partnership with Google and a merger with the Internet operations of Time Warner Inc. It’s unclear whether Yahoo will still pursue those deals now that Microsoft has backed off.

In his letter, Ballmer said Yahoo’s talks with Google were one of the main reasons he decided to not to pursue a hostile takeover. He described the alliance as “unwise from a business perspective” because Yahoo would cede too much power to Google in the lucrative search advertising market.

Analysts are divided on just how much Microsoft needs Yahoo.

One school of thought is that a Yahoo takeover could have turned into an expensive headache that probably wouldn’t start delivering dividends for two or three years. While Microsoft grappled with a Yahoo acquisition, Google theoretically could have benefited from the distractions and grown even stronger.

Without the Yahoo takeover on its plate, Microsoft can focus more on core software business with plenty of money available to buy more nimble Internet startups that could bolster its online operations.

But other analysts believe Yahoo — with 500 million users, a prized brand and the second largest ad network behind Google’s — represented Microsoft’s best chance to remain a powerhouse as the Internet increasingly defines how and why people interact with computers.

___

AP Technology Writer Jessica Mintz in Seattle contributed to this report.

[Source: Yahoo News]

Brazil, India, and China, which together count for more than a third of the world’s population, all voted against Office Open XML last week.

By Paul McDougall
InformationWeek

In an ominous sign for Microsoft (NSDQ: MSFT)’s growth prospects in emerging regions, countries that represent the world’s fastest growing tech markets voted against accepting the company’s latest Microsoft Office document format as an international standard.

Brazil, India, and China, which together count for more than a third of the world’s population, all voted against Office Open XML in voting last week before the International Organization for Standardization (ISO). Russia was the only member of the so-called BRIC nations to vote in favor of ISO ratification for OOXML.

“These are areas where open source has more strength and more advocates,” said Gartner analyst Michael Silver in an interview.

Seventy-five percent of ISO member nations voted in favor of making OOXML an ISO standard — meaning that the format has won the standards body’s imprimatur, barring a successful appeal by opponents.

But the list of large country’s that voted against OOXML also includes Canada, Iran, South Africa and Venezuela. The United States voted in favor of the format, which is used in Microsoft’s Office 2007 programs.

Developing nations like China, India, and Brazil are expected to account for the bulk of tech spending growth in the coming years. The fact that those countries rejected OOXML as a standard should be troubling for Microsoft, Silver said.

“Microsoft has long been trying to figure out the best ways to get into these countries, but those are areas where users are looking for more open source and free products,” said Silver.

Silver said the market share for the Linux operating system and applications that use the Open Document Format is small but growing fast in emerging markets, where consumers and businesses lack large technology budgets. “They’re much more price sensitive and don’t have a pre-existing installed base that locks them into commercial products,” said Silver.

Gartner estimates that the market share for desktop Linux is about 2% in the Asia-Pacific region, 4.5% in Eastern Europe, and 4% in the Middle East and Africa. By contrast, Linux holds 1.2% of the desktop market in the U.S.

Microsoft’s apparent victory before the ISO could be subject to appeal.

ISO approval of OOXML comes amid widespread allegations that Microsoft improperly tried to influence voting and the EU is investigating the process.

The chairman of a Norwegian technology committee tasked with studying OOXML earlier this week filed a protest against his country’s decision to approve the format. Questions have also been raised about the voting process in Germany, Croatia, and several other countries.

Microsoft last year conceded that an employee in Sweden offered to compensate local tech execs for joining the country’s standards committee and voting in favor of OOXML.

The stakes are high. OOXML is the default file format for Microsoft Office 2007 applications, including Word, PowerPoint, and Excel. The ISO recognition of OOXML could open the door to lucrative government, non-profit and educational markets for Office 2007.

Critics have argued that Microsoft has failed to publish sufficient documentation about OOXML for it to be considered a truly open standard.

ISO member nations last year rejected Microsoft’s initial request for OOXML approval. National bodies last week wrapped up voting on the company’s follow-up request.

Microsoft Corp Chief Executive Steve Ballmer pledged that the company would gain share against Google Inc in online advertising and Web searching, even if it’s his “last breath” at the company.

“So it may be my last breath at Microsoft, but we’re going to be there, working away, building share,” said Ballmer during a bantering question-and-answer session with Guy Kawasaki, a venture capitalist and one of the first employees at Apple Inc.”In online, yeah, it’s Google, Google, Google, and we’re in the game. We’re just the little engine that could,” joked Ballmer, whose company is the world’s largest software maker.

In the wide-ranging chat with Kawasaki, Ballmer addressed criticism about Windows Vista, launched a few subtle jabs at Apple, and even re-enacted an infamous dance that earned him Web video fame and earned him the unflattering nickname of “Monkey Boy” in some Internet circles.

“We’ve made an offer, and it’s out there, baby,” said Ballmer. The deal was originally worth $44.6 billion, but Microsoft’s stock slide has pushed down its value. The Microsoft CEO said if a deal should go through, the two companies will look to reduce overlapping areas.”We shouldn’t have two of everything. It won’t make sense to have two search services, two advertising services, two mail services, and we will have to sort some of that through,” said Ballmer.

Kawasaki did not hesitate to bring up past embarrassing moments for Ballmer, including references in an lawsuit that claimed Ballmer threw a chair at a former employee who said he was leaving Microsoft for Google. “Don’t pick up a chair and throw it at me,” Kawasaki said with a laugh. “Don’t go monkey on me either.”

By Amy Thomson, Bloomberg News

Microsoft Corp., the world’s biggest software maker, will cut the retail price of its Windows Vista operating system by as much as 48 percent to encourage customers to