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Originally published February 10, 2008 at 12:00 AM | Page modified February 10, 2008 at 1:07 AM

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Yahoo board poised to tell Microsoft no

Yahoo's board plans to reject Microsoft's $44.6 billion takeover bid in a letter Monday, saying the offer undervalues Yahoo, people involved...

The New York Times

Yahoo's board plans to reject Microsoft's $44.6 billion takeover bid in a letter Monday, saying the offer undervalues Yahoo, people involved in the discussions said Saturday.

The decision to reject the offer was made after a board meeting Friday in which directors discussed ways the company might respond to Microsoft's week-old bid. The board heard presentations from Yahoo's management and its bankers, people familiar with the discussions said.

Several presentations were made illustrating why the company was worth more than the $31 a share Microsoft offered, said these people, who declined to be identified.

The decision could provoke a showdown between two of the world's most prominent technology companies, with Internet search leader Google looming in the background.

Leery of Microsoft expanding its turf on the Internet, Google has offered to help Yahoo avert a takeover and urged antitrust regulators to examine the proposed deal.

Microsoft and Yahoo officials declined to comment Saturday on the decision, first reported by The Wall Street Journal on its Web site.

Microsoft is likely to mount a behind-the-scenes campaign directed at Yahoo's largest shareholders, hoping they will put pressure on Yahoo's board, people familiar with Microsoft's plans said.

Hedge funds have bought up much of Yahoo's stock since Microsoft made its bid, and they typically favor a quick sale as opposed to holding shares for the long term.

Microsoft also could make an offer directly to shareholders, called a tender offer. This could put even more pressure on Yahoo's board to accept Microsoft's initial bid.

Many analysts think Microsoft is prepared to offer up to $35 a share for Yahoo, which boasts one of the Internet's largest audiences and most powerful advertising vehicles despite a prolonged slump that has depressed its stock.

Microsoft also could put a deadline on its bid to increase the pressure.

Microsoft intimated it could seek to oust Yahoo's 10-member board at its next annual election, which will be in spring or early summer. Microsoft would have until March 13 to nominate a new slate of directors. Unlike other corporations, Yahoo has no protections to prevent an overthrow of its board.

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At the meeting Friday, the Yahoo board was presented with options for maintaining the company's independence, including an advertising partnership with Google that would probably improve Yahoo's bottom line, people familiar with the discussions said.

Lawyers at the meeting discussed the antitrust implications of a link with Google, as it would extend that company's dominance in the search-advertising business, these people said. They also discussed how to press Microsoft to increase its bid.

By spurning Microsoft, Yahoo risks further alienating shareholders already upset about management missteps that have led to five consecutive quarters of declining profits.

The downturn caused Yahoo's stock price to plummet by more than 40 percent, erasing about $20 billion in shareholder wealth, in the three months leading up to Microsoft's bid.

Led by company co-founder and board member Jerry Yang, Yahoo will be under intense pressure to lay out a strategy that will prevent its stock price from collapsing again. What's more, Yang and the rest of the management team must convince Wall Street that they can boost Yahoo's market value beyond Microsoft's offer.

This isn't the first time that Yahoo has spurned Microsoft. The company offered $40 a share to buy Yahoo a year ago only to be shooed away, according to a person familiar with the matter. The person didn't want to be identified because that bid was never made public.

Material from The Associated Press and The San Jose Mercury News is included in this report.

Copyright © 2008 The Seattle Times Company

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