February 1, 2008 10:05 AM PST

FAQ: What's next for Microsoft's Yahoo bid?

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Q: Why doesn't a prospective buyer do either one of those things from the get-go, rather than a bear hug?
Proxy fights and tender offers involve very expensive and time-consuming processes. The bear hug, as a result, is often tried first.

Q: Are there any other hurdles a hostile bidder can face?
Any prospective buyer, whether through a hostile bid or friendly deal, has to convince the target company's shareholders to tender its shares to it, proxy solicitors say. When a prospective buyer meets with the target company's investors to explain the deal's benefits, that process is called a road show.

The road show not only serves as a forum for a prospective buyer to tout the benefits of a merger, but it also gives the prospective buyer feedback as to whether the price it is offering is enough to persuade investors to do the deal. And the prospective buyers will also need to convince their own shareholders that the company will benefit as a result of the transaction.

Microsoft, for example, said in its press conference on Friday that it expects there to be $1 billion in synergies as a result of a Yahoo merger, according to a research note by Stanford Group. But Microsoft also anticipates that a Yahoo merger would reduce its existing earnings forecast by 14 cents a share for fiscal 2009.

Other steps could include a target company adding a so-called poison pill to the mix, which would flood additional shares of the target company onto the market, should a potential buyer obtain a certain threshold level of shares, according to Pierce. (News.com publisher CNET Networks recently added a poison pill to ward off a change-in-control effort by a large investor group.)

And if a target company is concerned with a proxy fight, it could expand the number of directors who serve on its board.

Q: What about legal issues like antitrust?
Regardless of whether a deal is a hostile transaction, companies need to get clearance from antitrust regulators. And if the companies have a presence in Europe or other countries, the deal needs the antitrust approval of those regions as well.

Microsoft has already faced antitrust battles in the United States and, more recently, in Europe, over such issues as the bundling of its software and interoperability with competitors' products. A Microsoft-Yahoo merger would also likely get scrutiny here in the United States, as well as in Europe.

In Europe, for example, Google--the archrival of both Microsoft and Yahoo--is awaiting word from European antitrust regulators as to whether it will eventually approve its acquisition of DoubleClick. Stanford Group, as a result, expects that it could take several months for European regulators to sign off on a Microsoft-Yahoo merger.

CNET News.com's Ina Fried contributed to this report.

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Yahoo should do what is good for the company, employees and customers
Not its shareholders. It is funny that what is good for shareholders is usually not good for its customers and employees.

The requirement to make everything about the shareholder has severely damaged American business.
Posted by The_Decider (3097 comments )
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