Microsoft Talks Up Yahoo Integration Plans

Microsoft Talks Up Yahoo Integration Plans
By Kenneth Corbin
February 22, 2008

Oh, the inevitability of it all.

In an internal e-mail sent earlier today, Kevin Johnson, Microsoft’s president of platforms and services, reminded his employees of the strategic advantages that will come from acquiring Yahoo, and addressed issues about the integration of the two companies such as staffing, corporate culture and branding.

With the two sides (publicly) deadlocked, talk whipping around of how high Microsoft will go, how low an offer Yahoo will accept and a looming proxy battle to oust the board, this stage of the deal has become a very public chess match. Every move is a calculated step, and this e-mail was no exception.

Johnson’s missive bore the tone of a press release. In fact, given the media alert that accompanied it, it was a press release.

“We have been very thoughtful about this combination, and are excited about what our two companies can do together,” Johnson wrote. “While Yahoo has issued a press release rejecting our proposal, we continue to believe we have a full and fair proposal on the table.”

He told his staff that “if and when Yahoo agrees to proceed,” the two companies would then work to clear the regulatory hurdles, and the transaction would close before the end of the year, sticking by the original timetable.

[cob:Related_Articles]Johnson, one of the Microsoft executives on the conference call announcing the offer exactly three weeks ago, put out the e-mail ostensibly to answer common questions employees had raised about the combination of the companies. They happen to include several of the same questions that members of the press have been asking.

The fate of the two brands has been a big one. “The Yahoo brand is one of the reasons the combination of the two companies would create so much value,” he wrote, adding, however, that it would be “premature” to speculate on which products would bear which brand in the combined company. A joint committee will see to that when the time comes, he said.

Pairing technology platforms

On pairing the technology platforms, Johnson reassured his team that Microsoft has made numerous acquisitions of companies whose technologies are not Windows-based. In some cases the open source technology has eventually morphed into Windows; in others, Microsoft has made the relevant facet of Windows interoperate with the acquired technology to preserve its original form. In the case of Yahoo’s technology, Johnson said that engineers from both companies would work together to make the appropriate decisions.

Johnson wrote that the two companies’ cultures would come together — some sooner, some later — in a synergistic hybrid buoyed by Microsoft’s R&D and Yahoo’s Web and “21st century media expertise.”

With regard to staffing, and the possibility of cuts, Johnson said that there would inevitably be some overlap of the two companies (read: layoffs), but that Microsoft is growing, and faces “no shortage of business and technical opportunities.” Any layoffs that come on the Yahoo side are going to be costly, after the golden parachutes announced earlier this week.

Finally, Johnson said that the combined company would maintain offices in Redmond and Silicon Valley.

With the number of options available to Yahoo CEO Jerry Yang dwindling, this acquisition has taken on an air of inevitability. The more pressure put on Yahoo’s board to come to the table, the better Microsoft’s bargaining position will be. On a merger of this scale, whittling even a fraction of a dollar off the final per-share price would save Microsoft hundreds of millions of dollars.