Microsoft, Yahoo face scrutiny in takeover

The two companies' wavering stances have left many questioning the entire acquisition

Since January, tech giants Microsoft and Yahoo have been entangled in an acquisition battle that is considered one of the most dramatic in Silicon Valley history. But as this story unfolds, both sides have wavered in their stances - confusing the public, the press, and even investors.

The battle put Yahoo in a tumultuous position as the acquisition target for the Seattle-based software giant Microsoft.

In May, Microsoft offered a hybrid deal where it would buy Yahoo's search assets, but Yahoo instead partnered with its behemoth rival Google for search advertising. After six months of botched acquisition attempts, Microsoft revived the ailing bid on July 7 when it said it would reconsider its offer with a new Yahoo board of directors, a move that was promoted by activist shareholder Carl Icahn.

The New York Times technology blog, Bits, blasted Microsoft for being "either cunningly devious or deeply confused" following the most recent statement. "One explanation for Microsoft's ambiguity is that the company simply wants to destroy Yahoo rather than buy it," Saul Hansell of the Times wrote. CNET echoed the tentative message coming from Microsoft in a column that urged Icahn to wait for a tangible sign that Microsoft is still interested in the deal before charging ahead with the proxy fight.

An industry source familiar with Yahoo told PRWeek the most efficient PR plan for both companies would be to put strategies in place for all outcomes, rather than responding to the barrage of inbound requests. The source says Yahoo achieved some success with its PR efforts that emphasized the company's commitment to its Silicon Valley heritage, giving the impression that it was taking the high ground against a hostile takeover.

"That [message] really resonated in [Silicon Valley] and it got good saturation," the source says. "But now, I'm not sure whether they can say that because there are so many other pieces to this. We're now in the second or third phase of this."

Microsoft, Yahoo, and Google declined to comment for this story.

Sam Singer, president of Singer & Associates, says that Yahoo and Microsoft's skittish commitment to the deal have left many confused about the companies' ultimate motivations.

"Corporations and their PR teams need to remember that the public doesn't follow the day-to-day battles, so they have to constantly give the overall messages they want people to know," Singer says, "whether that is the value of their independence, the value of the merger, or some other combination or option."

Laws limit what companies can say about potential acquisitions or proxy fights, but Singer says refusing to comment is a common mistake, and there are ways convey a stance without involving the company name.

"You need to participate... and remind people of where your corporation stands," he says.

The stakes are higher when the epic battle involves iconic brands and is drawn out. Singer notes the additional PR challenges companies face if a deal falls through.

"The longer a merger or acquisition takes, the more difficult it is if they fail, because then you have a lot of explaining on both sides about why the marriage didn't work," Singer says. "[And] I'm not sure anyone has told a compelling story about why an acquisition makes sense for Microsoft [and] Yahoo."

Yahoo might face the tougher battle because as the acquisition target, it is forced to be somewhat reactive to Microsoft's overtures, says Michael Gartenberg, VP and research director at Jupiter Research.

Earlier this year, for instance, Fortune magazine contended that Yahoo needed Microsoft's "protection and resources simply to survive as a brand."

Gartenberg adds, "On the front lines, it's really a war of words and war of perception of who has the moral high ground and is doing the best thing for shareholders."

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