Microsoft offer too low - Yahoo! wants billions more

Microsoft offer too low - Yahoo! wants billions moreEmail Print Normal font Large font AdvertisementFebruary 11, 2008 Page 1 of 2 YAHOO!, the world's second-most popular internet search engine, plans to reject Microsoft's $US44.6 billion ($49.8 billion) unsolicited takeover offer, a person familiar with the situation has said.
The board decided the price is too low, and is likely to reject it today, said the source, 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.
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!'s failure to crack Google's dominance in search led to eight straight profit declines and cut the stock's value in half in the two years before the offer.
"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 rumours or speculation. Frank Shaw and Bill Cox, spokesmen for Microsoft, did not immediately return calls.
Yahoo! is betting that Microsoft will not take hostile measures to win the bid, the Journal said, even though the software maker has indicated that is a possibility. A source said this week that Microsoft may seek to oust Yahoo! board members should they reject its offer.
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 realise the value inherent in our proposal."
Yahoo! rose 16c to $US29.20 yesterday in Nasdaq Stock Market trading and Microsoft added 44c to $US28.56. The offer is 62 per cent more than Yahoo!'s stock price before the bid. The shares have climbed above the value of the cash-and-stock bid, showing shareholders expect a higher price. Microsoft plans to let investors choose cash or stock, ultimately at a ratio of about 50-50.
Microsoft shares have declined since the bid, lowering the value of the stock portion and pushing the total value of the deal to about $US29.08 a share. Microsoft may have to bid $US34 to $US37, said Heather Bellini of UBS AG, a top-ranked software analyst. Since the bid is half cash and half stock, Microsoft may fix the offer at $US31 before any increase, so the value does not decline with its shares, she said.