Yahoo says Microsoft offer still 'undervalues' company

Updated from the top Monday 6:10 AM PDT by Dawn Kawamoto, who also added a short update note at the bottom at 2:30 PM PDT.

Yahoo on Monday responded to Microsoft's merger deadline, reiterating its rejection to the software giant's unsolicited buyout bid as "substantially" undervaluing the company.

"As a result of the decrease in your own stock price, the value of your proposal today is significantly lower than it was when you made your initial proposal," Yahoo CEO Jerry Yang and Chairman Roy Bostock wrote in a letter to Microsoft CEO Steve Ballmer.

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Microsoft's big bid for Yahoo

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Microsoft launched an unsolicited bid for Yahoo on February 1 in a deal initially valued at $31 a share. But Yahoo rejected that offer as undervaluing the company.

On Saturday, Microsoft issued an ultimatum to Yahoo, giving the Internet search pioneer three weeks to enter formal merger negotiations and conclude a deal. In Monday's letter, Yang and Bostock rebutted Ballmer's claim that Yahoo has refused to enter negotiations, citing meetings the two companies have had in recent weeks.

Jerry Yang, Yahoo's CEO

(Credit: Yahoo)

"Steve, you personally attended two of these meetings and could have advanced discussions in any way you saw fit," they added in response to Microsoft's claim that Yahoo has refused to enter negotiations.

Yahoo's board of directors met on Sunday to review Microsoft's ultimatum to close the deal within three weeks, according to a report in the Financial Times.

Yahoo: Reflect our true value
In its letter to Microsoft on Monday, Yahoo highlighted its global brand, recent sizable investments in its advertising platform, growth prospects, and its "strategic benefit to Microsoft," in justifying a higher bid.

"Our position is simply that any transaction must be at a value that fully reflects the value of Yahoo, including any strategic benefits to Microsoft, and on terms that provide certainty to our stockholders," the letter states.

Yahoo said its recent road show to outline its three-year financial plan to investors received "positive feedback from our stockholders." The company went on to note that it had strengthened its view that it's worth more as a standalone company than Microsoft's current bid.

More importantly, Yahoo stated that investors representing a "significant portion" of its shares have indicated to the company that Microsoft's offer substantially undervalues Yahoo.

Microsoft CEO Steve Ballmer

(Credit: CNET Networks)

But while Yahoo investors may want more money from Microsoft, it's unclear whether that would translate into a re-election of Yahoo's current directors, or if investors would support an opposition slate put forth by Microsoft in a proxy fight.

Over the weekend, Microsoft threatened to launch a proxy fight and to take its offer directly to Yahoo investors in an exchange offer. A proxy fight would entail Microsoft seeking to get an opposition slate of directors elected at Yahoo's next annual shareholders meeting, for which no date has yet been set. Should Microsoft's slate prevail, the new board would likely vote on the issue to remove Yahoo's antitakeover measure, otherwise known as a "poison pill." Without a poison pill, Microsoft would be able to tender the shares Yahoo's investors committed to the software giant as part of its exchange offer.

One major institutional investor said over the weekend that he had previously informed Yahoo's independent directors that he may consider voting for a new board of directors, if the parties did not move forward in a deal.

In its Monday letter, however, Yahoo said: "We are confident that our stockholders understand that our independent board is best positioned to objectively and knowledgeably evaluate our company's alternatives and to maximize value."

Antitrust concerns
Yahoo also highlighted its concern about a potentially rigorous antitrust review, both domestically and overseas, should it agree to a deal.

"As a follow up to a recent meeting among our respective legal advisors we had on this topic, and at your request, we provided to you on March 28, a list of additional information we would need to further our understanding of the regulatory issues associated with any transaction. To date, you have still not provided any of the requested information," Yahoo's letter states.

Yahoo said that an antitrust review could drag out and disrupt its operations, only to end with regulators nixing the deal. According to sources, shortly after Microsoft issued its unsolicited bid two months ago, Yahoo had begun inquiring into the antitrust ramifications and the likelihood that such a deal could get passed.

Microsoft, meanwhile, could be hearing the clock ticking on the waning months of the Bush administration and feeling pressure to wrap up the regulatory process. The process can take anywhere from six to eight months to review, said one former high-level antitrust attorney with the Department of Justice who is now in private practice.

Under the Bush administration, Microsoft's antitrust situation has been far less dicey than it has been with the European Commission. In February, the Commission slapped Microsoft with a $1.35 billion fine for failing to comply with its previous antitrust sanctions.

Yahoo, in closing its Monday note, said it wants Microsoft to provide "certainty of value and certainty of closing."

Update, 2:30 PM:
Microsoft is also working to keep its troops up-to-date as the heat intensifies between the two companies.

Kevin Johnson, president of Microsoft's platforms and services division, sent an e-mail to his employees Saturday, to inform them of the ultimatum Ballmer was issuing that day to Yahoo:

"I wanted to make you aware that we sent the attached letter to the Yahoo! Board of Directors today. We will not be commenting publicly or internally on the letter as we believe the letter speaks for itself. I will continue to keep you updated as events warrant. Thank you for your continued focus on our innovation roadmap and business objectives."

Throughout the takeover effort, Yahoo's Yang has made a habit of sending reassuring e-mails to the troops at his company.

[dascha1]

Where its healthy values?

Does my yahoo sign-in still keep in sync with the e-records of my
medical history? If they have taken this offline I need to know so I
can notify my providers to send it to another engine or just myself.

[Sea of Cortez]

Say NO to monopoly over information (search engine)

Note: if you are happy with 2 Giant companies having a monopoly over information (search engine) business, then ignore this message and do not read the rest of it. OTOH, if you do not like monopolies and want to see real alternatives, then read on.

Google and Yahoo monopoly over the search engine market will be seriously challenged by this cool new search engine called AnooX, here are reasons why I humbly think this is so:
1- Anoox search results are (fundamentally better) because they are democratically powered by knowledge of the people, more about this here:
http://www.anoox.com/voting_overview.jsp

2- Anoox Advertising costs are MUCH lower than Google or Yahoo because Anoox is operated on a "Not-Profit-Motivated" basis, more about this here:
http://www.anoox.com/community-based-model.jsp

3- Anoox is open source, so NO one company will control its results.

Plus many other reasons, such as Anoox free Web chat, free Blog. etc.

And I tell you this from our own small business example: our company has saved more than $10,000 over the last 6 months by switching our Advertising from Google to Anoox, really a life saver for small businesses, specially in current tough economy.

So in summary I say Anoox is going to do to the search engine industry what MySQL has done for the Database industry or Linux has done for OS industry.

P.S., for sake of full disclosure, we are an Anoox affiliate. OTN, if you do open an Advertising account with them please tell them Affiliate "DC-pc-Geeks" referred you.

[SleeStaK911]

Not 1998 Anymore, Yahoo

I understand that everyone wants to get top dollar for their company. But Yahoo was important around the turn of the century. Yes, it is bigger than MSN, but should consider itself dwarfed, these days, nonetheless.
MS would be the best thing that ever happened to Yahoo - would hopefully pull it in to this current age, like it or not.

[michael_o]

Well put

Good post. Yahoo -- you blew it, and the valuation of the company reflects that. Sell to MS, or maybe bring back TK to see if he can lead a turnaround. But the ostrich approach isn't likely to be effective.

[Mel in Hi]

Yes and No

Yahoo has fallen along the wayside, BUT I don't think that M$ is going to do ANYTHING good for the company. If M$ takes over, it will be just one more reason to use the other competing giant, just like I don't EVER go to MSN now. M$ survives in todays era by buying out real innovation and bullying, they do NOT produce anything of REAL value anymore. Sure, they marginally improve some old things that they have (or make them worse, depends on your application), but what REAL innovation have they done in the past decade? None.

[open-mind]

Has Microsoft Peaked As Well?

Kind of seems that way.

Rather than looking for even more balls to juggle, perhaps Microsoft should determine why they keep dropping the balls they already own.

[RainCaster]

and I think my house is worth $2M

But then reality settles in and the realtors tell me it is worth something far less. Hey Yahoo- it is the marketplace that determines your worth, and the market has spoken. Now M$FT wants to pay a big premium for you- don't be stupid- just take the money before Mr. Balmer wakes up and realizes what a bad deal he is making.

[shikarishambu]

Game Over

I am sure that Yang and CO realize that the value of any company is not what the management wants it to be but what a buyer is willing to pay.

I wish softies will lower the bid now!!!

[Sumatra-Bosch]

Give the Boy Fuhrer From Duncan Hines What He Wants!

Take your money.

Meet your people in the parking lot.

Watch the place empty of talent.

Start the next big thing, secure in the knowledge that next time you're ready to cash out you won't need to deal with MSFT or TBFFDH.

Here's all that you will miss by getting out now:

=The Boy Fuhrer from Duncan Hines bellowing in tired 1990s MBA phrasology and completely irrelevant sports metaphors.

=Chairs hurled in anger.

=A virtually empty building retaining a few guys on H1 Visas with no place to go, incompetent managers with no place to, employees with terminal diseases with no place to go (without losing their medical coverage) and the weird guys like Dwight from "The Office" greeting the bug-eyed, goose-stepping Microsofties on their knees, shouting "Hail! Hail! Hail, to our new Microsoft Overlords!"

=A really bad replay of the second plot point in "The Hunt from Red October" when the Americans take over the Russian submarine and then have to figure out how to run the Russian technology. One big difference: the American engineers were competent. BSD will baffle the MSFT crew and make them wet their pants.

Abject failure. MSFT has one trick: corner the boot loader through black-box contracts. Without a monopoly enforced by some enduring legal mechanism, MSFT is completely helpless. MS-Yahoo! will be the Zune of Web portals. Yahoo! is servicable now for what it does. Lord knows what horrifically embarassing kludge the MSFT will turn it into. You just know they'll screw up everything you've done right in the last 15 years.

Jerry, take the money. You don't want to have to watch this.

[JCPayne]

Microsoft not worth much anymore either....

e o m.

[jabberwolf]

Yahoo board to be sued!

Um do they think they OWN Yahoo?
Becuase many of the stockholders think, as the market shows, that MS's price is a good one.

If the yahoo board screws this up, there could be some legal implications for intentionally losing money for Yahoo.

Either way MS gets what it wants. Its not like yahoo has been doing great in the past, quite frankly it's sucked!