Yahoo has reportedly decided to reject Microsoft’s unsolicited takeover offer…
“Several newspapers and news agencies say Yahoo’s board will on Monday dismiss the $44.6bn offer as being inadequate…”
New York — Yahoo! Inc., the world’s second-most popular Internet Search Company, has failed to crack Google Inc.’s dominance of Web search, plans’ to reject a $44.6 billion takeover bid from Microsoft Corp., saying the offer undervalues Yahoo!, according to a person familiar with the situation said.
The decision to reject the offer was made after a board meeting on Friday when directors discussed ways the company might respond to Microsoft’s week-old bid.
The board spent a week reviewing the $31-per-share unsolicited offer before deciding it was too low, and directors are likely to reject it tomorrow, said the person, who declined to be identified because the discussions are not public.
“On February 1, Microsoft offered $US31 a share in cash and stock for Yahoo. The company wants at least $US40 a share, or $US12 billion more than Microsoft offered, The Wall Street Journal reported yesterday.”
The decision steps up pressure on co-founder Jerry Yang to present investors with a strategy to revive a stock that lost half its value in the two years before the offer. He may look to outsource its search efforts to Google or find another buyer, though analysts said it is unlikely that any other options will emerge and Microsoft may make a higher offer to win.
“A lot of this is gamesmanship on the part of Yahoo,” said Scott Kessler, an equity analyst at Standard & Poor’s in New York who recommends holding Yahoo and buying Microsoft. “Microsoft is well aware that Yahoo does not have any other options. What this is about is how much Microsoft wants Yahoo and how much time they are willing to wait to get this deal done.”
Microsoft is likely to mount a behind-the-scenes campaign directed at Yahoo!’s largest shareholders, hoping they will pressure the board, people familiar with Microsoft’s plans said. Hedge funds have bought much of Yahoo!’s shares since Microsoft made its bid, and they typically favor a quick sale rather than hold shares longer term.
As well, Microsoft could also decide to 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.
The decision could provoke a showdown between two of the world’s most prominent technology companies with Internet search leader Google Inc. looming in the background. Leery of Microsoft expanding its turf on the Internet, Google already has offered to help Yahoo avert a takeover and urged antitrust regulators to take a hard look at the proposed deal.
The chief executive of Yahoo!, Jerry Yang, who said last week that his company was examining its options, may consider a partnership with its bigger rival, Google, or ways to wrest a higher offer from Microsoft.
Yahoo, based in Sunnyvale, California, failed to crack Google’s dominance in search has posted eight straight quarters of profit declines and spent years trying and failing to catch up with Google in Web queries and the lucrative market for ads linked to search results.
“Yahoo! still has one of the largest brands on the internet,” Bill Tancer, general manager at the San Francisco researcher Hitwise, said in an interview before the report. “It confines Google to continue to grow their revenue from a single revenue stream, which is search.”
A Yahoo! spokeswoman, Diana Wong, said the company did not comment on rumors or speculation. Frank Shaw and Bill Cox, spokesmen for Microsoft, did not immediately return calls.
“If the world’s largest software maker wants Yahoo badly enough, Microsoft could try to override Yahoo’s board by taking its offer.”
Alternatively, Microsoft could sweeten its bid, and pay $40 for No. 2 Internet search company Yahoo, Kessler said. It is more likely the companies reach a deal for less, he said. UBS AG’s Heather Bellini, the top-ranked software analyst by Institutional Investor, said last week Microsoft may have to bid $34 to $37.
Together, Microsoft and Yahoo would control more than a quarter of the market for animated ads and colorful display banners at the top of Web pages. Google has not made much progress there, giving the combined company a way to challenge Google and start going after emerging markets such as mobile-phone ads.
“Yahoo! is betting that Microsoft will not take hostile measures to win the bid, the Journal said.”
Microsoft has already intimated that it could seek to oust Yahoo!’s board members at its next annual election should they reject its offer; it would have until March 13 to nominate new directors. Unlike other corporations, Yahoo! has no protections against such a move.
Microsoft’s chief executive, Steven Ballmer, said in a letter to Yahoo!’s board that was made public on February 1:
“Microsoft reserves the right to pursue all necessary steps to ensure that Yahoo!’s shareholders are provided with the opportunity to realize the value inherent in our proposal.”
Still, Yang, 39, has resisted letting go of the company he co-founded in 1995 as a graduate student at Stanford University. Initially a way to help people find their favorite places on the web, Yahoo! became the most-visited US internet site by combining search, news, sports and finance in a single place.
Yang replaced Terry Semel as chief executive officer in June after Yahoo!’s share of web searches tumbled and the company lost sales of banner ads, and intended to craft a strategy to revitalize Yahoo.
Yahoo! might seek help from rivals, soliciting other bids or seeking partnerships with Rupert Murdoch’s News Corp. or Google to thwart Microsoft, analysts including Stanford Group’s Clayton Moran said.
While a search and advertising partnership with Google is an option, it would face stiff regulatory scrutiny, Moran said. And News Corp is not interested in bidding for Yahoo!, Murdoch said last week.
“The Times of London reported today that Yahoo is considering restarting merger talks with Time Warner Inc.’s AOL Internet unit.”
Without other suitors on the horizon, Yahoo has had little choice but to turn a cold shoulder toward Microsoft if the board hopes to fulfill its responsibility to fetch the highest price possible for the company, said technology investment banker Ken Marlin.
“You would expect Yahoo’s board to reject Microsoft at first,” Marlin said. “If they did not, they would be accused of malfeasance.”
Seizing on an opportunity to expand its clout on the Internet, Microsoft dangled a takeover offer that was 62 percent above Yahoo’s stock price of just $19.18 when the bid was announced Feb. 1. Yahoo shares ended the past week at $29.20.
Google CEO Eric Schmidt contacted Yang to suggest a partnership, the New York Times reported Feb. 4. A partnership with Mountain View, California-based Google may allow Yahoo to outsource its search service, shedding the costs of running its own search engine and sharing ad revenue with its larger rival.
Google spokesman Matt Furman and Time Warner spokesman Ed Adler declined to comment.
“While a Google partnership is an option, it would face stiff regulatory scrutiny, Moran said.”
The US Justice Department is interested in reviewing the antitrust implications of a Yahoo!-Microsoft transaction, said a spokeswoman, Gina Talamona, last week.
And Neelie Kroes, commissioner of competition for the European Commission, said her agency would also scrutinize a deal.
Yahoo! is getting financial advice from Goldman Sachs, Lehman Brothers and Moelis & Co, two people familiar with the matter said.
Morgan Stanley and Blackstone Group LP are advising Microsoft.