Mon Feb 11, 9:23 AM ET
Yahoo's board of directors on Monday rejected Microsoft's buyout offer, saying the 44.6-billion-dollar deal "substantially undervalues" the veteran Internet company.
(AFP/HO/File)more news...
SAN FRANCISCO - Yahoo Inc. spurned Microsoft Corp.'s $44.6 billion takeover bid as inadequate Monday, betting that it can elicit a higher offer from the world's largest software maker or find another way to deliver a comparable payoff to its shareholders.
The rebuff by the slumping Internet pioneer had been widely anticipated after word of Yahoo's intention was leaked during the weekend.
In its formal response, Yahoo said its board had concluded Microsoft's unsolicited offer "substantially undervalues" the Sunnyvale-based company.
Yahoo indicated it could be lured to the negotiating table if Microsoft ups the ante, without mentioning the price it has in mind.
"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.
Investors appeared confident that Microsoft wants Yahoo badly enough to raise the stakes. Yahoo shares rose 25 cents to $29.45 in Monday's morning trading while Microsoft shares fell 48 cents to $28.08.
Yahoo's stock price had dropped by more than 40 percent in the three months leading to Microsoft's bid, valued at $31 per share when it was announced Feb. 1. The offer was 62 percent above Yahoo's market value at the time.
Many analysts believe Redmond, Wash.-based Microsoft will eventually raise its bid to $35 to $40 per share, sweetening the pot by $5 billion to $12 billion in an effort to negotiate an amicable sale.
Microsoft was prepared to pay at least $40 per share for Yahoo a year ago, according to a person familiar with the talks between the two companies a year ago. 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 a higher bid now could hurt Microsoft's own stock price, which has been slipping amid concerns that a Yahoo takeover could be more trouble than its worth. Microsoft's market value has plunged by more than $40 billion, or 14 percent, since the bid was made public.
Microsoft representatives didn't immediately respond to requests for comment Monday morning.
RBC Capital Markets analyst Jordan Rohan predicted Yahoo's board will have little choice but to sell the company if Microsoft raises its bid to $35 or $36 per share. "Yahoo management has already exhausted the patience of its largest, longest-suffering shareholders," Rohan wrote in a Monday note.
If it doesn't want to pay more money, Microsoft could take its original bid directly to Yahoo's shareholders. Microsoft's management began preparing for that possibility last week by meeting with some of Yahoo's major shareholders to rally support for its offer.
In a more extreme tactic, Microsoft could try to override Yahoo's board by trying to oust the current directors 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.
Yahoo also 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.
Although its profits have been dwindling during the past two years, Yahoo still possesses one of the Internet's biggest audiences and most valuable franchises. Microsoft believes it can build on those assets to become a more formidable competitor to Google Inc., which now holds a commanding lead in the lucrative online search and advertising markets.
Yahoo has reportedly been exploring an advertising partnership with Google as one way to boost its profits and remain independent. The company also has been looking for other suitors that might be interested in countering Microsoft's bid, but so far no one has stepped forward.
By rejecting Microsoft's initial offer, Yahoo's board is running the risk that the company's stock will plunge below $20 per share again if its suitor decides to walk away.
That scenario would probably unleash a flood of shareholder lawsuits, intensifying the pressure on Yahoo's management team to deliver on a long-awaited turnaround that has been in the works for the past 18 months.
Sign in front of Yahoo! headquarters in Sunnyvale, California. Internet giant Yahoo's board has decided to reject Microsoft's 44.6 billion dollar takeover bid, an informed source told AFP Saturday.
(AFP/Getty Images/File/Justin Sullivan)
Internet giant Yahoo's board has decided to reject Microsoft's takeover bid, saying its 44.6 billion dollar offer "massively undervalues" Yahoo, the Wall Street Journal reported Saturday.
(AFP/HO/File)by Glenn Chapman Sat Feb 9
SAN FRANCISCO (AFP) - Internet giant Yahoo's board has decided to reject Microsoft's 44.6 billion dollar takeover bid, an informed source told AFP Saturday.
The source confirmed an earlier Wall Street Journal report that Yahoo's management believes the Microsoft offer, which would bring together two top names in online computing, massively undervalues Yahoo.
The Journal said Yahoo's board also believes the Microsoft offer, at 31 dollars per share, does not account for risks facing Yahoo if it pursues a deal that might be ultimately blocked by government regulators.
"Yahoo's board believes that Microsoft's is trying to take advantage of the recent weakness in the company's share price to 'steal' the company," the newspaper said on its website, citing an unnamed source.
"Yahoo's board appears to be betting that Microsoft doesn't want to 'go hostile' and try to acquire the company against the wishes of management and the board," it said.
A person knowledgeable with the situation told AFP that the Journal report was generally in line with the Yahoo board's intentions.
"Reports today lacked some facts, but they are not totally off-mark," the person said, requesting anonymity. "You can expect that Monday will be the day that the board responds."
On February 1 Microsoft unveiled its 44.6 billion dollar offer to take over Yahoo, in an effort to merge the world's biggest software company with a major Internet player to take on search and advertising juggernaut Google.
Microsoft proposed 31 dollars per share to Yahoo's board, a 62 percent premium above its closing price the previous day.
Microsoft said a combination of the companies would lead to cost savings of a billion dollars per year.
But Yahoo chief executive Jerry Yang sent a message to employees on Wednesday, assuring them the firm's leaders were exploring ways to avoid a Microsoft takeover.
"Our board is thoughtfully evaluating a wide range of potential strategic alternatives in what is a complex and evolving landscape," Yang wrote in the email.
"What's become clear in the past few days is how much people care about this company. I've heard from many of you, and from other friends and colleagues from around Silicon Valley and across the globe, that we need to do what's best for Yahoo and our shareholders."
Google earlier condemned Microsoft's effort as an attack on the very independence of the Internet.
"Microsoft's hostile bid for Yahoo raises troubling questions," said David Drummond, Google's senior vice president for corporate development and chief legal officer, in a statement Sunday.
"This is about more than simply a financial transaction, one company taking over another. It's about preserving the underlying principles of the Internet: openness and innovation."
Analysts say the goal of the takeover is to better compete with Google, whose dominance of Internet advertising, backed by its powerful search engine technology, has come at both Microsoft's and Yahoo's expense.
Microsoft, they say, hopes that by taking over Yahoo it will expand its own presence in on-line advertising and, using Yahoo's popularity and technology, ratchet up its own competitiveness overall in Internet services.
On Monday Microsoft urged Yahoo to quickly accept its offer.
"We think it's a generous one," Microsoft chief executive Steve Ballmer said at the US firm's annual conference with analysts in New York.
"We trust the Yahoo board and the Yahoo shareholders will join with us quickly in deciding to move down an integrated path," Ballmer said.
Also on Monday, there were unconfirmed reports that Google's chief executive had called Yang to offer to help the company resist any hostile takeover campaign by Microsoft.
Yahoo would not confirm that, but a source close to the company told AFP earlier this week that Yahoo has received calls from "a number of interested parties" and has a wide range of strategic options.
Those options could include outsourcing online advertising to Google itself.
If it spurns Microsoft's offer, Yahoo's board of directors will be under pressure to give stockholders a better return on their shares in line with the tempting 62-percent premium Microsoft offered.
The Giant Deals...
Update: It looks like the war of words is really starting to heat up. Brad Smith, general counsel for Microsoft, has issued his own little statement here, telling us that Google holds far more marketshare when it comes to internet searching than a combined Microsoft and Yahoo! possibly could, and then going on to explain that the Redmond giant is "committed to openness, innovation, and the protection of privacy." Uh, whatever you say Brad.
Yahoo CEO Jerry Yang (L) and Microsoft Chairman Bill Gates in a composite image. Microsoft on Friday said it had offered to acquire Yahoo in a proposed cash and stock deal valued at $44.6 billion.
(File/Reuters)
This combination of two photos shows Microsoft founder Bill Gates, left, and Yahoo CEO Jerry Yang. Microsoft Corp. on Friday, Feb. 1, 2008 pounced on slumping Internet icon Yahoo Inc. with an unsolicited takeover offer of $44.6 billion in its boldest bid yet to challenge Google Inc.'s dominance of the lucrative online search and advertising markets.
(AP Photos)
The Yahoo Center office building is seen in Santa Monica, Calif. Friday, Feb. 2, 2008. The Justice Department on Friday said it is 'interested' in reviewing antitrust issues associated with Microsoft Corp.'s nearly $45 billion unsolicited bid for Yahoo Inc. If the deal goes through, analysts expect scrutiny from Congress, Justice and other enforcement agencies, but they say any concerns about search engine or online advertising market power may not be significant enough to stop the transaction.
(AP Photo/Damian Dovarganes)