Context
In the 2000s Yahoo was one of the largest internet portals, but it trailed Google in search and advertising. On February 1, 2008 Microsoft offered to buy Yahoo at $31 a share, about $44.6 billion, a premium of about 60 percent to the market price.
Symptom
Yahoo's share of search was falling, and the company had no clear plan for returning to growth. The board believed the offer undervalued the company.
Cause
The offer was compared with an idea of the company's future value. There was no realistic plan that could deliver that value. Such a plan needed to be tested as rigorously as the offer itself.
The fork
Accept the offer with its large premium, or turn it down in the belief that a stand-alone plan would create more value.
Decision
On February 11, 2008 the board rejected the offer. In May 2008 Microsoft withdrew it.
Execution
In the following years Yahoo changed leaders and strategies, but growth did not return. In July 2016 the company agreed to sell its core business to Verizon for $4.83 billion. While the deal was being prepared, two large breaches of user data came to light, and the price was cut by $350 million.
Outcome
The Verizon deal closed in June 2017 at about $4.48 billion. The comparison with Microsoft's offer is incomplete: Verizon bought only the core business, without the stakes in Alibaba and Yahoo Japan, which stayed with the shareholders. But a tenfold difference shows the cost of saying no without a tested plan.
What it means for you
An offer to buy a business is compared with a realistic plan, not with hope. And problems the buyer finds during due diligence almost always lower the price.
- Which plan would you compare an offer to buy with if it arrived tomorrow?
- What will a buyer find when they start checking your business?
- What price is truly enough for you, and why?
We would start by reviewing the business through a buyer's eyes and finding what will lower the price while it can still be fixed.
Key dates
| Year | Event |
|---|---|
| 2008, February 1 | Microsoft's offer: $31 a share, about $44.6 billion |
| 2008, February 11 | Yahoo's board rejects the offer |
| 2008, May | Microsoft withdraws the offer |
| 2016, July | Agreement to sell the core business to Verizon for $4.83 billion |
| 2017, February | Price cut by $350 million after reports of data breaches |
| 2017, June | Deal closes at about $4.48 billion |
Sources
- Yahoo Inc. Form 425, February 2008 (board letter rejecting the offer): Source
- Yahoo Inc. Form 8-K, Exhibit 99.1, February 2017 (amended terms of the Verizon deal): Source
- CNBC. *Verizon completes its $4.48 billion acquisition of Yahoo*, June 13, 2017: Source
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