december 8, 2009 kristena louie. kristena louie - bio experience product manager, microsoft office...
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Mergers & AcquisitionsDecember 8, 2009
Kristena Louie
Kristena Louie - Bio Experience
Product Manager, Microsoft Office (June 2008 - Present) Office New Business and Pilot Incubations Team Office Retail and Direct Channel Team
Technical Marketing Engineer, Intel Corp (Feb 2000 – May 2008) Pentium 4 ISV validation Processor Validation Tools Group Server Technical Marketing
Education Exec MBA, UW Foster School of Business (June 2007)
Beta Gamma Sigma Honors Graduate CEE Business Plan Competition
BSEE, UW Electrical Engineering (Dec 2000)
Other Activities Beta Gamma Sigma Honor Society (BGS) Women in Science & Engineering (WISE) Society of Women Engineers (SWE) Skiing, Cycling, Running, Rock Climbing
Disclaimer:
All Information disclosed is public and personal opinions expressed are not a reflection of Microsoft Corp.
Continuing the ROI conversation…ROI
Net Present Value (NPV)WACC / IRRProject ValuationMergers & Acquisitions (M&A)
Business Valuation Microsoft/Yahoo deal Microsoft/Facebook deal
Why do companies do Mergers & Acquisitions?Bring new processes or technologies in-houseGo to market fasterGrow market shareAcquire talentCompetitive strategy
What is the difference between Mergers & Acquisitions?Acquisition:
When one company buys another company Acquired company ceases to exist Friendly or hostile Ex. JP Morgan Chase buys Washington Mutual
Merger: Two or more companies combine resources to
meet a common goal Each company ceases to exist independently; a new
entity is formed Ex. Glaxo Wellcome and Smith Klein Beecham became
GlaxoSmithKlien
Business ValuationHow do you calculate the value of a business?
Net Present Value: What is the company’s future revenue?
Asset Valuation: How much would it be worth if liquidated?
Relative valuation: How much is a similar company worth?
Market Capitalization: What’s the market value of the company? (Stock price x Number of Shares)
“Build vs Buy” Analysis“Build vs Buy” analysis compares the NPV of
building out the capability in-house and the NPV of purchasing the acquisition.Build financial model of how much it would
cost and how long it would take to create the technology and grow the market share
Conduct business valuation of acquisition company
Factor in indirect implicationsRealize operational synergies from buying
Is NPV enough to justify the deal?Are there cases where NPV is positive, but you
would not pursue the deal?Does not align with company’s missionCultural differences
Are there cases where NPV is negative, but you would pursue the deal anyways?Supports broader corporate strategy‘Game Theory’: Oligopolistic behavior and
interdependence
The other side of the table…Considerations of the seller:
Business Valuation: How much is the company worth?
Maximizing sale price: Is there a better buyer? Employee impact: Will employees leave or be
eliminated?Shareholder impact: How will this affect the
stock price?Next best alternative: Will the potential buyer
become the competitor?
The Microsoft/Yahoo deal
Target: Yahoo!
Dec 3, 2008 – Rumors that former AOL CEO, Jonathan Miller, trying to buy Yahoo!
$28B-$30B offer $20-$22 per share Stock surges 7%
on news
Feb 1, 2008 – Microsoft makes unsolicited offer to buy Yahoo!• $44.6B offer• $31 per share• 62% premium
May 3, 2008 – Microsoft and Yahoo! end merger negotiations
Yahoo! wanted $55B or $37 per share
Microsoft only willing to pay $50B or $33 per share
July 2009 – Microsoft and Yahoo reach advertising deal
Yahoo search powered by Microsoft
Yahoo to get 88% of advertising revenue
The Microsoft/Yahoo! Deal Examined
Microsoft gets:
Search market share growth from 8% to 28%
Search & Online Advertising technology
Flywheel effect to improve search algorithms and advertising
Yahoo gets:
88% of ad revenue for first 5 years, 93% for last 5 years
Stronger revenue/cash flow position from ad revenue
Reduced R&D cost for search and advertising platform infrastructure
Yahoo search will be powered by Bing (Microsoft’s search)Yahoo will get vast majority of advertising revenueMicrosoft and Yahoo platforms will be used to serve ads Yahoo sales force to sell all ads
Letter from Steve Ballmer to Jerry Yang on May 3, 2009May 3, 2008
Mr. Jerry YangCEO and Chief YahooYahoo! Inc.701 First AvenueSunnyvale, CA 94089
Dear Jerry:
After over three months, we have reached the conclusion of the process regarding a possible combination of Microsoft and Yahoo!.I first want to convey my personal thanks to you, your management team, and Yahoo!’s Board of Directors for your consideration of our proposal. I appreciate the time and attention all of you have given to this matter, and I especially appreciate the time that you have invested personally. I feel that our discussions this week have been particularly useful, providing me for the first time with real clarity on what is and is not possible.
I am disappointed that Yahoo! has not moved towards accepting our offer. I first called you with our offer on January 31 because I believed that a combination of our two companies would have created real value for our respective shareholders and would have provided consumers, publishers, and advertisers with greater innovation and choice in the marketplace. Our decision to offer a 62 percent premium at that time reflected the strength of these convictions.
In our conversations this week, we conveyed our willingness to raise our offer to $33.00 per share, reflecting again our belief in this collective opportunity. This increase would have added approximately another $5 billion of value to your shareholders, compared to the current value of our initial offer. It also would have reflected a premium of over 70 percent compared to the price at which your stock closed on January 31. Yet it has proven insufficient, as your final position insisted on Microsoft paying yet another $5 billion or more, or at least another $4 per share above our $33.00 offer.…We will move forward and will continue to innovate and grow our business at Microsoft with the talented team we have in place and potentially through strategic transactions with other business partners. I still believe even today that our offer remains the only alternative put forward that provides your stockholders full and fair value for their shares. By failing to reach an agreement with us, you and your stockholders have left significant value on the table.
But clearly a deal is not to be.
Thank you again for the time we have spent together discussing this.
Sincerely yours,
/s/ Steven A. BallmerSteven A. BallmerChief Executive OfficerMicrosoft Corporation
I am disappointed that Yahoo! has not moved towards accepting our offer. I first called you with our offer on January 31 because I believed that a combination of our two companies would have created real value for our respective shareholders and would have provided consumers, publishers, and advertisers with greater innovation and choice in the marketplace. Our decision to offer a 62 percent premium at that time reflected the strength of these convictions.
In our conversations this week, we conveyed our willingness to raise our offer to $33.00 per share, reflecting again our belief in this collective opportunity. This increase would have added approximately another $5 billion of value to your shareholders, compared to the current value of our initial offer. It also would have reflected a premium of over 70 percent compared to the price at which your stock closed on January 31. Yet it has proven insufficient, as your final position insisted on Microsoft paying yet another $5 billion or more, or at least another $4 per share above our $33.00 offer.
The Microsoft/Facebook deal
The Microsoft/Facebook Deal Examined
Microsoft gets:
Exclusive provider of Facebook’s banner ads until
2011
1.6% equity stake in Facebook
Facebook gets:
$250M cash to continue to innovate
$15B valuation
Key Questions:• Why does Microsoft care about an equity
stake?• Why does Facebook care about the $15B
valuation?
Key TakeawaysM&A is one investment technique for
growing the businessM&A evaluation uses a combination of
business valuation techniques to measure ROI of actions
Financial ROI may not the only metric used to determine if it is a good decision to buy
The ‘Buy vs Build’ and ‘Next Best Alternative’ analysis helps to inform the decision and strategy
“Game Theory” is a key in oligopolistic markets
Thank you