Microsoft (NSDQ: MSFT) scheduled today’s strategic update a while ago, before it made its $44.6 billion offer for Yahoo (NSDQ: YHOO). But naturally, due to the timing, the presentation from CEO Steve Ballmer and CFO Chris Liddell was dominated by the offer. Some key highlights:
– Offer price: Microsoft sees the $44.6 billion price tag as a Goldilocks offer that gives current Yahoo shareholders a generous pop today, while preserving the long-term upside for Microsoft shareholders. Ballmer: “We trust that Yahoo board and Yahoo shareholders will take it seriously.” Another factor in setting the price was to make it generous enough that Yahoo might agree quickly. It’s not clear that this will actually happen, but Microsoft sees value in getting the deal done fast. Liddell: “We think it’s in our interest, we think it’s in Yahoo’s interest to resolve their future as quickly as possible.” When asked whether the company has started to purchase any Yahoo shares, Liddell just offered a “no comment.”
– Financing: The company believes the 50/50 cash and stock split is a nice mix and Microsoft plans to finance some of the cash portion with the debt, though it’s not clear how much. Consistent with a company that’s build up such a cash horde over the years, it wants to be conservative with respect to financing. Ballmer: “There’s enough technological risk that we don’t have much of an appetite for financial risk.”
– Rationale: Ballmer highlighted a few key justifications for the deal. The first was R&D and engineering capabilities. Microsoft wants to “innovate like crazy” in such areas as search, advertising, video, mobile and social media, and it believes that by combining its engineering forces with Yahoo, it will be able to do just that. Other important factors: scale and operational efficiencies. Ballmer made a point several times now, that to successfully sell anything using an auction model (in this case ads), it pays to have a large population of buyers and sellers. He did note, however, that the company’s internet strategy is about more than ads. Not surprisingly, he repeated the company’s software-plus-services mantra, saying that advertising is just one of the online services it will offer. Subscription fees and transactions are also part of the mix.
– Regulatory: Predictable argument: deal would establish a solid number two. Any other scenario would result in a less competitive market place.
– Payback: The Yahoo deal is hoped to be breakeven, at least, by the second fiscal year.
– Investments: I lost track of the number of times Ballmer said the company would “invest for success.” In all of the company’s businesses, Microsoft sees a lot of investment that needs to be made. The Yahoo offer is just one of these investments.