• by Tanya Gazdik , February 25, 2008

Microsoft has not given up on its plan to acquire Yahoo, a company executive told employees in an internal e-mail on Friday.

"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," wrote Kevin Johnson, president of Microsoft's platforms and services division, in the e-mail. "Until this proposal is accepted and receives regulatory approval, we must continue to operate our business as we do today and compete in this rapidly changing online services and advertising marketplace."

Meanwhile, two Detroit pension funds have sued Yahoo and its board of directors, saying they breached their duties to shareholders in trying to thwart the takeover by Microsoft. The lawsuit was filed in Delaware Chancery Court late last week by lawyers representing Detroit's police and fire retirement system and general retirement system, as well as "all other similarly situated public shareholders."

Johnson said Microsoft's proposal includes a "thoughtful integration planning process for a Microsoft-Yahoo combination. It is important to me that this process includes leaders from Yahoo and Microsoft and is done in a way that enables us, together, to make decisions in a collaborative way. Importantly, this will be an inclusive process with Yahoo employees, as they are a key part of our success as a combined company."

"It is important to note that once Yahoo and Microsoft agree on a transaction, we can begin the integration planning process in parallel with the regulatory review," he wrote. "We can create the integration plan, but we cannot begin to implement it until we have formal regulatory approval and have closed the transaction. Because the integration process will be critical to our success as a combined company, we are taking this very seriously. We have recent--and successful--experience in this arena, including our integration planning with aQuantive and Tellme, both of which led to successful combinations of talent, assets, and infrastructure."

Johnson outlined the benefits of a Microsoft-Yahoo combination.

"First, the industry needs a more compelling alternative in search and online advertising," he wrote. "I have personally met with top executives of the major media companies, and I know there is a desire for more competition in search and online advertising. Without this, there's less innovation, less competition, and less value being generated for consumers, advertisers, and publishers. Together, Microsoft and Yahoo would have an opportunity to change and evolve the experiences and value we deliver to all of these groups."

"For consumers and developers, our expanded R&D capacity would allow us to drive innovation in emerging user experiences in areas such as search, video, mobile, commerce, and social media," he wrote. "Already, our collaborative work with Yahoo on interoperability between our instant messaging services has benefited consumers and made it easier for them to stay connected with friends and family."

"For advertisers and publishers, scale economics would allow us to deliver more value to this customer base. By combining search and non-search advertising inventory on a single ad platform, yield is also improved. The other benefits and opportunities may include improving return on investment and decreasing the cost and complexity of running multiple campaigns. We also believe in an extensible ad platform. From my discussions with top advertising agency executives, they share this belief and want to play a key role in extending this ad platform for incremental value to advertisers."

Microsoft will not uproot Yahoo Inc. from its Sunnyvale, Calif. headquarters if it succeeds in its bid to buy the Web portal company.

"In bringing the companies together, we would be committed to maintaining Yahoo's significant presence in Silicon Valley," Johnson wrote. "While some overlap is expected in any combination of this size, we should remember that Microsoft is a growth company that has hired over 20,000 people since 2005, and we would look to place talented employees throughout the company as a whole."