Yahoo Rejects Microsoft’s Offer

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Portal Could Explore Alliances With Google, AOL

By Matthew CreamerPublished: February 11, 2008

NEW YORK ( — Following Yahoo’s decision to reject Microsoft’s $44.6 billion takeover attempt, speculation has focused on what the future holds for the slumping online-media giant.

A few scenarios have popped up. One has Microsoft continuing to press Yahoo by taking the proposal directly to its shareholders or by sweetening the offer to make it palatable to the Yahoo board, which today said the bid undervalues the company. Another has Yahoo playing defense either by partnering with Google on search advertising, sure to draw scrutiny from regulators, or by rekindling talks with Time Warner about a merger with its AOL unit.

Microsoft is chasing Yahoo as part of its effort to close the gap on Google, the leader in search. The combination would combine the No. 2 and 3 players, but “Micro-hoo,” as it’s been unofficially dubbed, would still trail Google.

Bid ‘substantially undervalues Yahoo’
A statement from Yahoo’s board of directors today said the bid “substantially undervalues Yahoo including our global brand, large worldwide audience, significant recent investments in advertising platforms and future growth prospects, free cash flow and earnings potential, as well as our substantial unconsolidated investments.”

In its statement, the Yahoo board said it 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.”

A Microsoft spokesman declined to comment.

2 thoughts on “Yahoo Rejects Microsoft’s Offer

  1. Its more of a strategy to get most out of the offer. By rejecting it… it is hoped that microsorft increase the offer to say $60 billion. Then yahoo would accpet it .

  2. Thursday, February 14, 2008
    Yahoo, Microsoft Faced With Shareholder Unrest

    By Associated Press

    In a sign of shareholder unrest over Microsoft Corp.’s (MSFT) bold bid to buy Yahoo Inc. (YHOO), shareholders of both companies are sounding off on the controversial proposal that has propelled the two stocks in opposite directions.

    A Yahoo investor sued the company earlier this week for saying “no” to Microsoft’s blockbuster merger offer, accusing board members of violating their fiduciary duties.

    Meanwhile, a major Microsoft stockholder is urging the software giant to “play hardball,” arguing that offering a higher price for Yahoo’s isn’t worth it.

    Yahoo has rejected Microsoft’s merger offer, initially valued at $44.6 billion, saying the proposal undervalues the Internet giant. Many analysts expect the software behemoth to raise its bid, although Yahoo has also reportedly been negotiating with other potential partners or bidders, including Google Inc. (GOOG) and News Corp. (NEWS), which owns Dow Jones & Co., the publisher of this newswire.

    On Monday, the Wayne County Employees’ Retirement System, which owns about 13,600 Yahoo shares, filed a lawsuit against the company’s board, saying the directors “have not agreed to negotiate with Microsoft regarding the extent to which it would increase it offer, or to implement another transaction of equivalent or greater value.”

    “The board is obligated to negotiate and explore Microsoft’s offer,” the suit, which seeks class-action status before Delaware Chancery Court, argued. “The board cannot ‘just say no,’ a posture that is unreasonable given these circumstances.”

    Some of Yahoo’s larger shareholders believe the merger will likely succeed after Microsoft raises its offer. Earlier this week, the well-known fund manager, Bill Miller of Legg Mason (LM) — Yahoo’s second-largest shareholder — said he sees a deal being approved but Microsoft will have to “enhance its offer.”

    But a Microsoft shareholder, with about one million shares of the tech giant, argued that a higher price would hurt the software company’s investors.

    In a letter Tuesday to Microsoft Chief Financial Officer Christopher Liddell, Robert Olstein, chairman of Olstein Capital Management, said, “Under no circumstances should you raise your price.”

    “We believe your recent offer for Yahoo is materially above Yahoo’s value as an independent company,” he said. “I understand your desire to acquire the proprietary software, technology and applications of Yahoo, but if you pay too much, you will be better off building from within.”

    Despite expectations that the Redmond, Wash.-based company will eventually come back to the table with a higher offer, Olstein urged Microsoft to take a tougher stance, saying, “You can buy Yahoo at the present price or cheaper if you step away and play hard ball.”

    Olstein also lamented that the proposed merger has “already transferred shareholder value from Microsoft to Yahoo.” Under its proposed deal, Microsoft would pay Yahoo shareholders in cash and Microsoft stock. Yahoo shares have jumped more than 50% since Microsoft unveiled its bid Feb. 1, while Microsoft’s stock has fallen about 11%.

    In recent late trading Yahoo shares are down to $29.95 from the Thursday close of $29.98 while Microsoft’s are unchanged at $28.50.

    The jump in Yahoo’s shares underscored investor optimism that the marriage will eventually be consummated. But in a letter to shareholders, Yahoo Chief Executive Jerry Yang explained the board’s decision to reject Microsoft’s offer, saying the Internet giant is “a great company” poised for bigger growth.

    He also reaffirmed that the Yahoo board is looking into other alternatives, although he did not elaborate. Yang outlined Yahoo’s strengths, citing its strong global brand, its wide reach on the Internet and recent initiatives to boost its advertising technology.

    He said the Sunnyvale, Calif.-based giant has taken “important steps to streamline our organization and close down or scale back businesses that don’t support these critical growth initiatives. Yahoo has reportedly embarked on a wave of layoffs this week cutting about 1,000 jobs.

    “Today, Yahoo is a faster-moving, better-organized, more nimble company than it was just a few months ago,” Yang wrote. “This is a great company and we are moving quickly to make it even better.”

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