Microsoft letter hopeful, vague on Yahoo deal

Microsoft is optimistic a Yahoo deal will close by the end of this year, according to a letter to employees

In a letter to employees, Microsoft put an upbeat spin on its attempt to take over Yahoo.

While noting that no acquisition agreement is in place, Kevin Johnson, president of Microsoft's platforms and services division, wrote that he expects such a transaction to close in the second half of this year. "If and when Yahoo! agrees to proceed with the proposed transaction, we will go through the process to receive regulatory approval, and expect that this transaction will close in the 2nd half of calendar year 2008," he wrote.

Microsoft made its US$44.6 billion offer for Yahoo on February 1. More than a week later, Yahoo rejected the bid as too low. Microsoft maintains that the offer is fair.

Johnson addressed some of the most pressing questions surrounding the potential acquisition in the letter, which Microsoft distributed to the media, but answered few of them definitively.

Acknowledging that there would likely be overlap in terms of staffing, he also noted that Microsoft has hired more than 20,000 people since 2005. "We have no shortage of business and technical opportunities, and we need great people to focus on them," he said. Microsoft would retain locations in both Silicon Valley and Redmond if the deal went through, he said.

He didn't shed any more light on the fate of either company's brands. "It is premature to say which aspects of the brands and technologies we would use in our combined offerings," he said.

Johnson also revealed little about how Microsoft would handle Yahoo's wide use of open-source software in its systems, an issue that some industry watchers have wondered about. Yahoo often uses open-source software in its back-end systems, while Microsoft prefers its own proprietary software. In the past, after acquisitions, Microsoft has sometimes migrated systems to its own software and in other cases maintained the existing software, Johnson said. "Yahoo! has made significant investments in both its skills and technologies, so we would work closely with Yahoo! engineers to make pragmatic platform and integration methodology decisions as appropriate, prioritizing above all how those decisions would impact customers," he said.

Johnson indicated that the process of integrating the companies would be critical to a combination's success. He pointed to recent Microsoft acquisitions, including aQuantive and Tellme, as examples of successful integrations.

Earlier this week, The New York Times reported that Microsoft planned to soon launch a proxy fight to replace Yahoo's board and force the takeover in a hostile bid. Neither company confirmed that report.

Johnson reiterated Microsoft's belief that a combination of the two companies would create a "more compelling alternative in search and online advertising," something that major media companies are looking for, he said.

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