Tumblr May Reject Yahoo’s $1.1B Acquisition Offer For Being “Too Low”

Tumblr employees feel that Yahoo’s $1.1 billion offer is “too low” and view it as “only a first offer,” according to sources close to acquisition talks. Yahoo may have to increase the offer to close the deal. An acquisition by some tech giant is likely in the cards for Tumblr, though, as sources say the company only has a few months of cash runway left.

The news comes after AllThingsD reported Yahoo was in advanced talks to buy Tumblr for $1.1 billion cash, and the portal’s board of directors are set to meet on Sunday night to discuss the potential deal. Forbes reports that Facebook and Microsoft have also expressed interest in acquiring Tumblr. However, Forbes says that Yahoo has lock-up agreement arranged with Tumblr that prevents the blogging platform from holding a “bake-off” or bidding war for the right to buy it.

If Yahoo comes to the table with an insufficient offer, which our sources say $1.1 billion may qualify as, Tumblr could reject it and shop itself around some more. A frothy M&A market could give it plenty of options. Others might not offer as much as Yahoo, but could offer a more appealing working environment. Take a chance turning Yahoo around? Or go somewhere more stable and relevant?

A few months ago Tumblr let several companies know it was interested in possibly being acquired. Yahoo was the first to come to the table with a firm number, says one of our sources. They say Tumblr is apprehensive about accepting the $1.1 billion cash offer, though. Considering the much smaller, younger Instagram’s acquisition price was supposed to be $1 billion (in cash and stock, though, which would eventually make it worth less), it seems reasonable that Tumblr would view $1.1 billion cash as a lowball.

Tumblr employees have been told that the company only has enough funds to operate for a few more months, as its costs far exceed the limited revenue it earns. Tumblr pulled in $13 million in 2012, but has accelerated its advertising offering in hopes of hitting $100 million in revenue this year. The money’s not coming in fast enough to support its expenses though. Employees were recently told not to be concerned, though, because the company is expecting to be bought.

Tumblr Yahoo

Of course, Yahoo might be able to push the deal through for $1.1 billion or just a little more depending on how the acquisition is structured. If it promises Tumblr’s CEO David Karp he can retain control of the company, provides the right retention bonuses, or won’t force Tumblr to shoehorn in integrations with Yahoo’s other properties, Tumblr may be more receptive.

In the end it will be Tumblr’a execs and board who make the decision who to sell to and for how much. They could certainly ignore grumbling from employees.

If the deal goes through, it might not be so popular with Tumblr’s users, who range from young hipsters to diehard Internet aficionados. Many thought Instagram’s user base would balk at its acquisition by Facebook, but the photo sharing service has continued to grow, offering some hope to Yahoo and Tumblr if their deal closes.

If Yahoo successfully buys the startup, it could inject some much-needed “cool,” youthful energy, and design sense into the aging tech giant. That’s why Tumblr may not necessarily be worth more than $1.1 billion, but it’s worth more than that to Yahoo. The giant desperately needs to bring in as much talent as possible to replace or at least reinvigorate the ranks of uninspired employees. But if Yahoo pays more and Tumblr doesn’t help turn things around, it could be disastrous. Unfortunately, dialysis doesn’t come cheap.