December 8, 2009
Kristena Louie
Kristena Louie - Bio
 Experience
 Product Manager, Microsoft Office (June 2008 - Present)
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Office New Business and Pilot Incubations Team
Office Retail and Direct Channel Team
 Technical Marketing Engineer, Intel Corp (Feb 2000 – May 2008)
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Pentium 4 ISV validation
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Processor Validation Tools Group
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Server Technical Marketing
 Education
 Exec MBA, UW Foster School of Business (June 2007)
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Beta Gamma Sigma Honors Graduate
CEE Business Plan Competition
 BSEE, UW Electrical Engineering (Dec 2000)
 Other Activities
 Beta Gamma Sigma Honor Society (BGS)
 Women in Science & Engineering (WISE)
 Society of Women Engineers (SWE)
 Skiing, Cycling, Running, Rock Climbing
Disclaimer:
All Information disclosed is public and personal
opinions expressed are not a reflection of Microsoft
Corp.
Continuing the ROI conversation…
 ROI
 Net Present Value (NPV)
 WACC / IRR
 Project Valuation
 Mergers & Acquisitions (M&A) 
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Business Valuation
Microsoft/Yahoo deal
Microsoft/Facebook deal
Why do companies do Mergers &
Acquisitions?
 Bring new processes or technologies in-house
 Go to market faster
 Grow market share
 Acquire talent
 Competitive strategy
What is the difference between
Mergers & Acquisitions?
 Acquisition:
 When one company buys another company
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Acquired company ceases to exist
Friendly or hostile
Ex. JP Morgan Chase buys Washington Mutual
 Merger:
 Two or more companies combine resources to meet a
common goal

Each company ceases to exist independently; a new entity is formed

Ex. Glaxo Wellcome and Smith Klein Beecham became GlaxoSmithKlien
Business Valuation
 How do you calculate the value of a business?
 Net Present Value: What is the company’s future revenue?
 Asset Valuation: How much would it be worth if liquidated?
 Relative valuation: How much is a similar company worth?
 Market Capitalization: What’s the market value of the
company? (Stock price x Number of Shares)
“Build vs Buy” Analysis
 “Build vs Buy” analysis compares the NPV of building
out the capability in-house and the NPV of purchasing
the acquisition.
 Build financial model of how much it would cost and
how long it would take to create the technology and
grow the market share
 Conduct business valuation of acquisition company
 Factor in indirect implications
 Realize operational synergies from buying
Is NPV enough to justify the deal?
 Are there cases where NPV is positive, but you would not
pursue the deal?
 Does not align with company’s mission
 Cultural differences
 Are there cases where NPV is negative, but you would
pursue the deal anyways?
 Supports broader corporate strategy
 ‘Game Theory’: Oligopolistic behavior and interdependence
The other side of the table…
 Considerations of the seller:
 Business Valuation: How much is the company worth?
 Maximizing sale price: Is there a better buyer?
 Employee impact: Will employees leave or be eliminated?
 Shareholder impact: How will this affect the stock price?
 Next best alternative: Will the potential buyer become the
competitor?
Target: Yahoo!
Feb 1, 2008 – Microsoft
makes unsolicited offer
to buy Yahoo!
May 3, 2008 – Microsoft
•
•
•
$44.6B offer
$31 per share
62% premium
and Yahoo! end merger
negotiations
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Yahoo! wanted $55B or
$37 per share
Microsoft only willing
to pay $50B or $33 per
share
Dec 3, 2008 – Rumors
that former AOL CEO,
Jonathan Miller, trying
to buy Yahoo!
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$28B-$30B offer
$20-$22 per share
Stock surges 7% on
news
July 2009 – Microsoft
and Yahoo reach
advertising deal


Yahoo search
powered by Microsoft
Yahoo to get 88% of
advertising revenue
The Microsoft/Yahoo! Deal Examined
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Yahoo search will be powered by Bing (Microsoft’s search)
Yahoo will get vast majority of advertising revenue
Microsoft and Yahoo platforms will be used to serve ads
Yahoo sales force to sell all ads
Microsoft gets:
Yahoo gets:
Search market share growth from
8% to 28%
88% of ad revenue for first 5 years,
93% for last 5 years
Search & Online Advertising
technology
Stronger revenue/cash flow
position from ad revenue
Flywheel effect to improve search
algorithms and advertising
Reduced R&D cost for search and
advertising platform infrastructure
Letter from Steve Ballmer to Jerry Yang on May 3, 2009
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.
Video
The Microsoft/Facebook Deal Examined
Microsoft gets:
Facebook gets:
Exclusive provider of Facebook’s
banner ads until 2011
$250M cash to continue to
innovate
1.6% equity stake in Facebook
$15B valuation
Key Questions:
• Why does Microsoft care about an equity stake?
• Why does Facebook care about the $15B valuation?
Key Takeaways
 M&A is one investment technique for growing the
business
 M&A evaluation uses a combination of business
valuation techniques to measure ROI of actions
 Financial ROI may not the only metric used to
determine if it is a good decision to buy
 The ‘Buy vs Build’ and ‘Next Best Alternative’ analysis
helps to inform the decision and strategy
 “Game Theory” is a key in oligopolistic markets