Yahoo got lucky with the Alibaba stake. That wasn’t what Microsoft was after. Microsoft was desperate to be relevant in Internet consumer services and compete with Google.
Yang and the board believed they could fix Yahoo. None of their predictions came true.
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“In an email to Yahoo employees after the board's rejection of the Microsoft offer was made public, Chief Executive Jerry Yang maintained that the company is well-positioned to grow, citing the Internet powerhouse's efforts to improve its standing in online advertising and build an alliance with newspapers.
"We have accomplished a great deal in a very short time," Yang said. "Yahoo is a faster-moving, better-organized, more nimble company well on its way to transforming the experiences of its users, advertisers, publishers and developers."
He said the company aims to "grow visits to key Yahoo starting points and properties by approximately 15% per year over the next several years."
No. The Alibaba and Yahoo Japan stakes would have paid for the entire purchase while still having benefits and then some. Yahoo sold $8B of Alibaba in 2012 and $40B of the remaining in 2019. They sold Yahoo Japan shares for $4B. Microsoft would have had no need to sell the 2012 stake at the time. They could have possibly doubled their money.
At the time, most of the share value was in Yahoo's core business. If this was Microsoft's way to buy a stake in Alibaba, it was a very expensive way to do so.
You are thinking of the wrong era. We're talking about the 2008 offer to buy Yahoo. Alibaba was worth around $10b when Microsoft offered to buy Yahoo for $45b.
MS offered $44B for Yahoo inclusive of their almost 50% stake in then pre-ipo Alibaba. At the time, Yahoo's investment in Alibaba was valued at more than their entire market cap (negative valuation for Yahoo's domestic operations, or negative value taking into account tax implications of divestiture of these assets, etc).
Yahoo turned down MSFT's offer. Yahoo then spun off its entire company, keeping the name Yahoo with this spin-off subsidiary. The parent company, now named Altiba, retained ownership of the stake in Alibaba. This is where the ~50B valuation remained.
The spin-off company (valued in the negative by the market) was then sold for $4.5B to Verizon. Altiba retained its $56B market cap during this time.
Yahoo, inclusive of Altiba, out-performed MS's offer. It was a far better deal for shareholders to turn down MSFT. The net value to shareholders exceeded $60B.
There were a lot of poorly written articles at the time, which confused the sale of the subsidiary (YHOO) with the previous offer (for both YHOO and what became AABA) so your confusion is understandable. But this perspective is simply wrong.
I seem to remember the stake in Alibaba was worth a huge proportion of the valuation at the time. I didn’t know the deal fell apart because of that, I was just under the impression Yahoo’s board and Jerry didn’t want to sell to 2008 Microsoft.
Not quite. Yahoo's value at the time was still substantially undervalued. Don't forget Yahoo sold off a piece of their Alibaba stake after the bid - some estimates say had Yahoo held on to it, they would be worth much more today.
Alibaba was pre-ipo at the time and did not have a market valuation. The most effective way to estimate a market value for Alibaba at this time is the 2008 MSFT offer itself.
MSFT didn't offer $44B for Yahoo's internet business. The offer was in large part for the Alibaba stake.
Regardless, MSFT priced it all at around $44B, which is less than it eventually was valued at.
The market cap of Yahoo was still around half that when Mayer was appointed. But that was all from their stake in Alibaba, which has already been spun off. The rest of Yahoo had a negative value, I think. So it's gone from 0 (conservatively) to $5B.
Couldn't locate the 'Alibaba' word on the said article, I was assuming Microsoft had offered it for Yahoo alone ... as it was desperate for 'search' share?? are you sure, the bid included Alibaba share too??
That's all because of alibaba. Yahoo would be worth around $80-$90 if they had sold to MSFT or may be even more as they wouldn't have sold part of alibaba share like marissamayer did last year or so. would have, could have.
"The deal for Alibaba was expensive and risky at the time, but ended up as the most lucrative bet in Silicon Valley: at today's prices, that stake would be worth more than $80 billion. Normally, such a success would preserve a company for years, but on Monday morning Yahoo announced that it would sell its operating business—the web properties without Alibaba and other investments—to Verizon for less than $5 billion, pennies on the dollar it would have commanded at its peak 15 years ago."
I also worked at Yahoo at that time, and I remember the feelings internally were more mixed. It was known that nearly all (or even more than 100%) of Yahoo's market value was the investment in Alibaba. Microsoft's offer basically valued all of Yahoo minus Alibaba and minus Yahoo Japan basically at nothing. And I'm perplexed by your blame on Jerry Yang, as out of the entire history of Yahoo, his Alibaba investment was the most financially successful act, worth more than anything any CEO at Yahoo had ever done combined.
Also remember at that time that Google, MSN, and Yahoo were the three major search engines at that time. It wasn't clear why Yahoo couldn't close on the #1 spot. It had the clear #1 search engine spot in Japan already. The Yahoo properties (combination of all their websites) was the most popular websites on the internet. They had a much stronger machine learning and data mining research lab, one year bragging that they swept all the best paper awards at the ML/DM computer science conferences.
They owned shares in Alibaba that had a market value of $4b more than Yahoo's market cap, which in theory should have reflected the value of Alibaba plus all the other assets.
> They really avoided a huge disaster by walking away from Yahoo, so I applaud them.
That offer included Yahoo's stake in Alibaba, which was split off after Microsoft's bid fell through. Yahoo owned 30% of Alibaba at the time. Alibaba's current market cap is north of $600 billion.
The Alibaba and Yahoo Japan stakes Yahoo got were selling half of Alibaba stake for $8B in 2012 and $40B remaining in 2019. They sold Yahoo Japan shares for $4B in 2019. Microsoft would have had no need to sell the 2012 stake at the time. They could have possibly doubled their money.
After spinning out their share of Alibaba into a separate company worth $56 billion. Yahoo shareholders still got a lot more out of it than they would have by accepting the Microsoft buyout.
This thread dives into how Microsoft lowballed Yahoo: https://news.ycombinator.com/item?id=31029289
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