Offer to Buy or Hostile Takeover?

Upon reading the letter sent by Microsoft to Yahoo! more carefully, I think I'm seeing a completely different subtext than I originally thought, which was an offer to purchase.

I could be over-analyzing, but I've been working in and around public companies for many years now and I smell a hostile takeover bid, or at least the threat of one.

Read below and tell me what you think:

  1. Microsoft says that Google is consolidating it's position, and if they don't offer an alternative quickly, both MS and Y! will lose. "Today, the market is increasingly dominated by one player who is consolidating its dominance through acquisition. "

  2. Microsoft states that they tried to play nice, but Yahoo wasn't interested: "We discussed a number of alternatives ranging from commercial partnerships to a merger proposal, which you rejected."

  3. Microsoft says that they no longer are interested in playing nice. "While a commercial partnership may have made sense at one time, Microsoft believes that the only alternative now is the combination of Microsoft and Yahoo! that we are proposing."

  4. Microsoft is making a very generous offer: "Our proposal represents a 62% premium above the closing price of Yahoo! common stock". Too generous. This is, in my opinion, aimed at investors, not Yahoo's owners.

  5. Microsoft expects Yahoo's Board of Directors to reject it out of hand, and warns them they had better look at it carefully instead: "Due to the importance of these discussions and the value represented by our proposal, we expect the Yahoo! Board to engage in a full review of our proposal."

  6. Microsoft then threatens to go directly to the shareholders over the objections of the Board(a hostile takover), based on Yahoo's expected negative response: "Microsoft reserves the right to pursue all necessary steps to ensure that Yahoo!'s shareholders are provided with the opportunity to realize the value inherent in our proposal."

  7. Signalling the beginning of hostilities, Microsoft breaks with the traditional quiet, behind the scenes negotiations and announces that the offer to the shareholders will be made public, whether Yahoo likes it or not. They don't even give Yahoo time to accept or reject it, which I think tells us that Microsoft already knows what the response will be and doesn't accept it: "In light of the significance of this proposal to your shareholders and ours, as well as the potential for selective disclosures, our intention is to publicly release the text of this letter tomorrow morning."

That's my take. Should be fun to watch the fireworks!


ADDED: Yahoo's first response calls this an "Unsolicited Proposal", instead of the many other things it could have called it (like offer to buy, exciting news, interesting development, etc) which indicates a generally unhappy tone to me.

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