Microsoft Withdraws Proposal to Acquire Yahoo!

REDMOND, Wash., May 3 /PRNewswire-FirstCall/ -- Microsoft Corp.
(Nasdaq: MSFT) today announced that it has withdrawn its proposal to acquire
Yahoo! Inc. (Nasdaq: YHOO).
(Logo: here )
"We continue to believe that our proposed acquisition made sense for
Microsoft, Yahoo! and the market as a whole. Our goal in pursuing a
combination with Yahoo! was to provide greater choice and innovation in the
marketplace and create real value for our respective stockholders and
employees," said Steve Ballmer, chief executive officer of Microsoft.
"Despite our best efforts, including raising our bid by roughly $5
billion, Yahoo! has not moved toward accepting our offer. After careful
consideration, we believe the economics demanded by Yahoo! do not make sense
for us, and it is in the best interests of Microsoft stockholders, employees
and other stakeholders to withdraw our proposal," said Ballmer.
"We have a talented team in place and a compelling plan to grow our
business through innovative new services and strategic transactions with other
business partners. While Yahoo! would have accelerated our strategy, I am
confident that we can continue to move forward toward our goals," Ballmer
said.
"We are investing heavily in new tools and Web experiences, we have
dramatically improved our search performance and advertiser satisfaction, and
we will continue to build our scale through organic growth and partnerships,"
said Kevin Johnson, Microsoft president for platforms and services.
Below is the text of the letter from Microsoft CEO Steve Ballmer to Yahoo!
CEO Jerry Yang.

May 3, 2008

Mr. Jerry Yang
CEO and Chief Yahoo
Yahoo! Inc.
701 First Avenue
Sunnyvale, 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.
Also, after giving this week's conversations further thought, it is clear
to me that it is not sensible for Microsoft to take our offer directly to your
shareholders. This approach would necessarily involve a protracted proxy
contest and eventually an exchange offer. Our discussions with you have led
us to conclude that, in the interim, you would take steps that would make
Yahoo! undesirable as an acquisition for Microsoft.
We regard with particular concern your apparent planning to respond to a
"hostile" bid by pursuing a new arrangement that would involve or lead to the
outsourcing to Google of key paid Internet search terms offered by Yahoo!
today. In our view, such an arrangement with the dominant search provider
would make an acquisition of Yahoo! undesirable to us for a number of reasons:
-- First, it would fundamentally undermine Yahoo!'s own strategy and
long-term viability by encouraging advertisers to use Google as opposed
to your Panama paid search system. This would also fragment your
search advertising and display advertising strategies and the ecosystem
surrounding them. This would undermine the reliance on your display
advertising business to fuel future growth.

-- Given this, it would impair Yahoo's ability to retain the talented
engineers working on advertising systems that are important to our
interest in a combination of our companies.

-- In addition, it would raise a host of regulatory and legal problems
that no acquirer, including Microsoft, would want to inherit. Among
other things, this would consolidate market share with the
already-dominant paid search provider in a manner that would reduce
competition and choice in the marketplace.

-- This would also effectively enable Google to set the prices for key
search terms on both their and your search platforms and, in the
process, raise prices charged to advertisers on Yahoo. In addition to
whatever resulting legal problems, this seems unwise from a business
perspective unless in fact one simply wishes to use this as a vehicle
to exit the paid search business in favor of Google.

-- It could foreclose any chance of a combination with any other search
provider that is not already relying on Google's search services.

Accordingly, your apparent plan to pursue such an arrangement in the event
of a proxy contest or exchange offer leads me to the firm decision not to
pursue such a path. Instead, I hereby formally withdraw Microsoft's proposal
to acquire Yahoo!.
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. Ballmer

Steven A. Ballmer
Chief Executive Officer
Microsoft Corporation

About Microsoft
Founded in 1975, Microsoft (Nasdaq: MSFT) is the worldwide leader in
software, services and solutions that help people and businesses realize their
full potential.
This release does not constitute an offer to sell or the solicitation of
an offer to buy any securities or a solicitation of any vote or approval. This
material is not a substitute for the prospectus/proxy statement Microsoft
Corporation would file with the Securities and Exchange Commission (the "SEC")
if an agreement between Microsoft Corporation and Yahoo! Inc. is reached or
any other documents which Microsoft Corporation may file with the SEC and send
to Yahoo! stockholders in connection with the proposed transaction. INVESTORS
AND SECURITY HOLDERS OF YAHOO! INC. ARE URGED TO READ ANY SUCH DOCUMENTS FILED
WITH THE SEC CAREFULLY IN THEIR ENTIRETY WHEN THEY BECOME AVAILABLE BECAUSE
THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT THE PROPOSED TRANSACTION.
Investors and security holders will be able to obtain free copies of any
documents filed with the SEC by Microsoft Corporation through the web site
maintained by the SEC at www.sec.gov. Free copies of any such documents can
also be obtained by directing a request to Investor Relations Department,
Microsoft Corporation, One Microsoft Way, Redmond, Washington 98052-6399.
Microsoft Corporation and its directors and executive officers and other
persons may be deemed to be participants in the solicitation of proxies in
respect of the proposed transaction. Information regarding Microsoft
Corporation's directors and executive officers is available in its Annual
Report on Form 10-K for the year ended June 30, 2007, which was filed with the
SEC on August 3, 2007, and its proxy statement for its 2007 annual meeting of
stockholders, which was filed with the SEC on September 21, 2007. Other
information regarding the participants in a proxy solicitation and a
description of their direct and indirect interests, by security holdings or
otherwise, will be contained in any proxy statement filed in connection with
the proposed transaction.
Statements in this release that are "forward-looking statements" are based
on current expectations and assumptions that are subject to risks and
uncertainties. Actual results could differ materially because of factors such
as Microsoft Corporation's ability to achieve the synergies and value creation
contemplated by the proposed transaction, Microsoft Corporation's ability to
promptly and effectively integrate the businesses of Yahoo! Inc. and Microsoft
Corporation, the timing to consummate the proposed transaction and any
necessary actions to obtain required regulatory approvals, and the diversion
of management time on transaction-related issues. For further information
regarding risks and uncertainties associated with Microsoft Corporation's
business, please refer to the "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Risk Factors" sections of
Microsoft Corporation's SEC filings, including, but not limited to, its annual
report on Form 10-K and quarterly reports on Form 10-Q, copies of which may be
obtained by contacting Microsoft Corporation's Investor Relations department
at (800) 285-7772 or at Microsoft Corporation's website at
www.microsoft.com/msft.
All information in this release is as of May 3, 2008. Microsoft
Corporation undertakes no duty to update any forward-looking statement to
conform the statement to actual results or changes in the company's
expectations.
SOURCE Microsoft Corp.

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