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Individual Assignment

Microsofts letter to the board of directors at Yahoo, proposing to buy the Internet

Below, the text of Microsofts letter to the board of directors at Yahoo, proposing to
buy the Internet company for $44.6 billion, or about $31 per share in cash and stock.

January 31, 2008

Board of Directors Yahoo! Inc.
701 First Avenue Sunnyvale, CA 94089
Attention: Roy Bostock, Chairman
Attention: Jerry Yang, Chief Executive Officer
Dear Members of the Board:
I am writing on behalf of the Board of Directors of Microsoft to make a proposal for a
business combination of Microsoft and Yahoo!. Under our proposal, Microsoft would
consideration of $31 based on Microsofts closing share price on January 31, 2008,
condition. Our proposal represents a 62% premium above the closing price of Yahoo!
common stock of $19.18 on January 31, 2008.
realization event for your shareholders.
We believe that Microsoft common stock represents a very attractive investment
opportunity for Yahoo!s shareholders. Microsoft has generated revenue growth of
three years. Microsofts share price has generated shareholder returns of 8% during

Windows Vista, and other strategic initiatives. Microsofts consistent belief has been
efficient and competitive company that would provide greater value and service to
our customers.
Yahoo! that we are proposing.
Yahoo! Board that now is not the right time from the perspective of our shareholders
to enter into discussions regarding an acquisition transaction. According to that
letter, the principal reason for this view was the Yahoo! Boards confidence in the
potential upside if management successfully executed on a reformulated strategy
improved. While online advertising growth continues, there are significant benefits of
fall into four areas: Scale economics: This combination enables synergies related to
that will strengthen the value proposition to both advertisers and publishers.
Additionally, the combination allows us to consolidate capital spending. Expanded
Together we can unleash new levels of innovation, delivering enhanced user
experiences, breakthroughs in search, and new advertising platform capabilities.
of our companies has on its own. Operational efficiencies: Eliminating redundant
infrastructure and duplicative operating costs will improve the financial performance
of the combined entity. Emerging user experiences: Our combined ability to focus
engineering resources that drive innovation in emerging scenarios such as video,

integration of our respective businesses to create a leading global technology
company with exceptional display and search advertising capabilities. You should
key leaders and employees across all disciplines. We have dedicated considerable
combination will receive all necessary regulatory approvals.
appropriate limited due diligence with respect to Microsoft.
immediately. In light of the significance of this proposal to your shareholders and
release the text of this letter tomorrow morning. Due to the importance of these
to pursue all necessary steps to ensure that Yahoo!s shareholders are provided with
the opportunity to realize the value inherent in our proposal. We believe this proposal
represents a unique opportunity to create significant value for Yahoo!s shareholders
Sincerely yours,
Steven A. Ballmer
Chief Executive Officer Microsoft Corporation
1. What is the type of Merger? Vertical, Horizontal and why?
2. What are the proposed synergies represented in Microsoft's Bear Hug letter?
3. What are the probable motives for this deal for each Microsoft and Yahoo

4. Do you think this deal could have been successful or not had it happen and
why or why not
5. At what stage of M&A is this letter written?