The details of the offer
The following are the details of the offer that was presented by Microsoft to Yahoo! on Friday.
$/share should:
Value to Yahoo! Shareholders No Shares Tender All Shares Tender
1. Yahoo! distributes $12.5B in Asian Assets $9.00 $9.00
2. Yahoo! distributes $3.5B in cash to shareholders
Comprised of $1B from Microsoft for search,
$2.5B of cash on hand $2.50 $2.50
3. Microsoft offers $2.8B in preferred debt at 5% $2.00 $2.00
4. Microsoft tenders $3.9B for Yahoo! shares at $19.50 - $2.77
5. Remaining Shares
$16.73 = effective value of shares after tender
(86% x $19.50) $19.50 $16.73
Total Value To Yahoo! Shareholders $33.00 $33.00
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Search Deal Would Increase Yahoo! EBIT to over $2B in CY09 – remaining share valuation
represents 14.5 x GAAP pre-tax income
• Microsoft acquires Yahoo! search assets for $1B in cash
• Microsoft is the exclusive provider to Yahoo! and its partners of paid search, contextual search and algo search for the term of the deal
• Microsoft guarantees Yahoo! the greater of:
(a) 85% net revenues for the first three years, and 70% of net revenues thereafter,
or
(b) $2.3B per year of after-TAC revenues scaled down in event of underperformance of Yahoo! US Homepage views and affiliate rev.
• At the end of 5 years, the agreement expires unless Microsoft or Yahoo! exercise one of the following:
- Microsoft may extend the agreement for 5 years should Microsoft guarantee $3B net revenues per year
- Yahoo! may extend the agreement for 5 years with Microsoft bound to guarantee $1.6B per year
• Yahoo! no longer needs to support the costs of employees or infrastructure of the search business.
• Microsoft will cooperate with Yahoo! to allow Yahoo! to collect data from its web search to support its display advertising business.
• Microsoft will provide Yahoo! with a limited, non-exclusive IP license for use of search IP in support of its display advertising platform.
• Yahoo! will guarantee that Microsoft’s search will retain equal or greater prominence throughout the Yahoo! site as Yahoo! search does today.
Steve Ballmer has made it clear to me that if a new board consisting of my nominees were to be elected, Microsoft would be willing to enter into discussions immediately regarding a transaction along the lines described above. If and when elected, I strongly believe that in very short order the new board would, subject to its fiduciary duties, be approving an offer along these lines for its shareholders.
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Thank you for your patience, cooperation and support.
Sincerely,
CARL C. ICAHN
