- The Washington Times - Sunday, February 10, 2008

SAN FRANCISCO (AP) — Yahoo Inc.’s board will reject Microsoft’s $44.6 billion takeover bid after concluding the unsolicited offer undervalues the slumping Internet pioneer, according to a person familiar with the situation.

The decision could provoke a showdown between two of the world’s most prominent technology companies.

If the world’s largest software maker wants Yahoo badly enough, Microsoft could try to override Yahoo’s board by taking its offer — originally valued at $31 per share — directly to the shareholders. Pursuing that risky route probably would require Microsoft to attempt to oust Yahoo’s current 10-member board.

Alternatively, Microsoft could sweeten its bid. Many analysts believe Microsoft is prepared to offer as much as $35 per share for Yahoo, which still boasts one of the Internet’s largest audiences and most powerful advertising vehicles despite a prolonged slump that has hammered its stock.

Yahoo’s board reached the decision after exploring a wide variety of alternatives during the past week, according to the person who spoke to the Associated Press. The person didn’t want to be identified because the reasons for Yahoo’s rebuff won’t be officially spelled out until tomorrow morning.

Microsoft and Yahoo declined to comment yesterday on the decision — first reported by the Wall Street Journal on its Web site.

Yahoo’s board concluded that Microsoft’s offer is inadequate, even though the company couldn’t find any other potential bidders willing to offer a higher price.

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.

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 last week at $29.20.

Led by company co-founder and board member Jerry Yang, Yahoo now will be under intense pressure to lay out a strategy that will prevent its stock price from collapsing again. What’s more, Mr. 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 Redmond, Wash.-based company offered $40 per 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.

Yahoo now may want Microsoft to raise its price to at least $40 per share again. That would force Microsoft to raise its current offer by about $12 billion — a high price that might alarm its own shareholders. Microsoft’s stock price already has slid 12 percent since the company announced its Yahoo bid.


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