Yahoo rebuffs Microsoft's bid
SAN FRANCISCO (AP) - February 11, 2008 The rebuff, formally announced early Monday, wasn't a surprise
because Yahoo had leaked its intention over the weekend.
As expected, Yahoo's board unanimously decided to spurn
Microsoft after concluding the offer - originally worth $44.6
billion or $31 per share - "substantially undervalues" one of the
Internet's prized franchises. The cash-and stock deal is now valued
at about $40 billion, or $28.91 per share, because of a drop in
Microsoft's market value.
But Yahoo didn't raise antitrust concerns about the proposed
deal and added language that seemed to invite a higher offer from
Microsoft, the world's largest software maker.
"The board of directors is continually evaluating all of its
strategic options in the context of the rapidly evolving industry
environment and we remain committed to pursuing initiatives that
maximize value for all stockholders," Yahoo said in a statement.
Microsoft, though, didn't seem inclined to raise the bid Monday,
releasing a statement describing its current bid as "full and
fair."
Calling Yahoo's decision "unfortunate," Microsoft didn't back
off from its quest either. "Based on conversations with
stakeholders of both companies, we are confident that moving
forward promptly to consummate a transaction is in the best
interests of all parties," the Redmond, Wash.-based company said.
While assessing its response to Microsoft, Yahoo's board also
examined a wide range of alternatives that included forging an ad
partnership with Google, which paid nearly $5 billion in marketing
commissions to thousands of Web sites last year.
Without identifying its sources, the Times of London also
reported Yahoo is exploring a merger with Time Warner Inc.'s AOL,
another popular Internet property that has been struggling in
recent years. A Yahoo spokesman declined to comment on the report.
Investors appear convinced Microsoft's bid remains Yahoo's best
bet, given the Sunnyvale-based company's profits have been steadily
declining despite a management shake up eight months ago and
repeated promises of a turnaround extending back to 2006.
Reflecting Wall Street's belief that Microsoft will raise its
bid, Yahoo shares climbed 67 cents Monday to close at $29.87. On
the flip side, Microsoft's shares dropped 35 cents to finish at
$28.21 as its shareholders continued to fret that a Yahoo
acquisition could turn into more trouble than its worth.
Microsoft's advisers are believed to be working behind the
scenes to rally support among Yahoo shareholders and determine how
much more the bid needs to be increased to force Yahoo's board to
negotiate a friendly deal.
"You would assume that their first offer isn't the best and
final offer," said Morton Pierce, an attorney who advises on
mergers and acquisitions for the law firm Dewey & LeBouef. "The
question now is how do you get to the end game?"
Analysts are convinced Microsoft will raise its bid because it
needs Yahoo to close Google's widening lead in the lucrative online
search and advertising markets that are rapidly reshaping the
technology and media industries.
Meanwhile, Yahoo finds itself in a bind because its stock was
near a four-year low before the Microsoft bid surfaced and its
management already has said things are unlikely to get
significantly better until 2009.
"Both companies seem to have limited options to achieve their
goals, so it appears they really do need each other," said
Stanford Group Co. analyst Clayton Moran.
Although its profits have been dwindling during the past two
years, Yahoo still possesses one of the Internet's biggest
audiences and largest ad networks.
Still, those assets haven't been compelling enough to persuade
other potential suits to counter Microsoft's bid, despite Yahoo's
best efforts to drum up interest in the past week.
That could lessen the incentive for Microsoft to raise its bid.
But Yahoo wouldn't have had any chance of extracting more money
unless its board spurned the initial offer.
"This was a logical move by Yahoo's board, but I still think
this is deal is going to get done," said Ryan Jacob, a money
manager who owns Yahoo shares in an Internet investment fund
bearing his name. "I think most shareholders will be ready to
accept if the bid is raised to the mid-$30 (per share)."
Yahoo's stock price had dropped by more than 40 percent in the
three months leading up to Microsoft's bid, which was announced
Feb. 1. The offer was 62 percent above Yahoo's market value at the
time.
Microsoft was prepared to pay at least $40 per share for Yahoo a
year ago, according to a person familiar with the earlier talks
between the two companies. Yahoo wasn't interested then because it
was confident in its own strategy, said the person, who didn't want
to be identified because Microsoft's 2007 offer was never publicly
disclosed.
But making a higher bid now could accelerate the recent decline
in Microsoft's market value, which has fallen by about $40 billion,
or 13 percent, since the Yahoo offer.
If it doesn't want to pay more money, Microsoft could take its
original bid directly to Yahoo's shareholders. A more hostile
approach ultimately could lead to Microsoft trying to oust Yahoo's
10-member board later this year - a risky maneuver that would
likely create hard feelings that would make it more difficult to
cobble the two businesses together if a deal were consummated.
Meanwhile, Yahoo could fend off Microsoft by exercising an
antitakeover device, known as a "poison pill," that would issue
more company shares to make a buyout too expensive to pull off.
Microsoft hasn't ruled of the possibility of things becoming
ugly, emphasizing Monday that it's prepared to "pursue all
necessary steps to ensure that Yahoo's shareholders are provided
with the opportunity to realize the value inherent in our
proposal."
Analysts doubt either side wants to become locked into a
divisive struggle that could distract both management teams for
months while Google tried to capitalize on the impasse.
If Yahoo isn't sold, Chief Executive Jerry Yang assured
employees in a Monday e-mail that the company is poised to rebound
on its own and become a "must buy" in the $45 billion online
advertising market.
"We have accomplished a great deal in a very short time,"
wrote Yang, a company co-founder and board member who promised
better times after he became CEO eight months ago. "Yahoo is a
faster-moving, better organized, more nimble company well on its
way to transforming the experiences of its users, advertisers,
publishers and developers."
Just two days before Microsoft made its bid, Yang warned Yahoo
faced "headwinds" in 2008 and laid out plans to eliminate 1,000
jobs, or about 7 percent of the company's work force, to boost
profits.