February 15, 2008 11:00 AM PST

Week in review: Yahoo snubs Microsoft

For Yahoo, Microsoft's price isn't right.

But it appears that the companies' buyout battle has only begun.

In an announcement that had been expected, Yahoo's board of directors rejected Microsoft's $44 billion takeover offer, saying it undervalues the company. Yahoo said its board will continue to evaluate its strategic options and pursue a path to "maximize value for all stockholders."

Microsoft now has two paths it can take to buy Yahoo, according to some analysts, investors, and proxy solicitors. The software giant can up the ante on its initial buyout bid of $44.6 billion and hope that Yahoo will bite, or try the one-two punch approach of a tender offer followed by a proxy fight for control of Yahoo's board of directors.

While analysts believe that the company has a few other moves up its sleeve before it submits its best and final offer, Microsoft appears to be posturing for a fight. Some have said the company is likely willing to up its bid from $31 to at least $35 a share.

Yahoo shareholders could try to intervene, creating a situation similar to the one BEA Systems faced last year, to negotiate a deal. Absent a higher bid, Microsoft is likely to deliver that one-two punch, some proxy solicitors say. Yahoo's entire 10-member board is up for re-election at the next annual shareholders meeting.

The idea of an increased bid sounds good to Yahoo's second-largest shareholder, who said Microsoft will need to "enhance its offer" to complete the deal and that Yahoo will be in a "tough spot" if it wants to remain independent.

That judgment was included in the latest Legg Mason Value Trust newsletter by Bill Miller, the chief investment officer of Legg Mason Capital Management, which holds more than 80 million Yahoo shares.

However, Yahoo continues to look for alternatives. According to a source familiar with the matter, News Corp. and Yahoo have been in talks about forging some kind of a deal that would counter Microsoft's offer. The source did not divulge details of the talks, and a Yahoo representative declined to comment.

Many CNET News.com readers believe that Yahoo is just delaying the inevitable, and one reader says Yahoo employees aren't happy about it.

"The smell of fear and rage is pervasive on campus," wrote one News.com reader to the TalkBack forum. "They might as well have been told the Mansons were buying the place."

Additionally, Yahoo laid off more than 1,000 employees this week. One source inside the company said the number was 1,100, which is slightly higher than expected. The layoffs bring the head count down to about 13,200 employees.

However, sources inside the Internet company suspect that more cutbacks could be in the offing in the coming weeks.

Plugged in and disconnected
Yahoo isn't the only company on Microsoft's shopping list this week. The software giant is acquiring Danger, the Palo Alto, Calif.-based maker of the T-Mobile Sidekick, for an undisclosed amount. However, according to technology journalist Om Malik, the price tag for the company was $500 million.

Danger's Sidekick handles many of the same functions that business-oriented smartphones handle--Web browsing, e-mail, and instant messaging--but it does so in a way that has been more popular with executives' kids than with businesspeople themselves.

The challenge for Microsoft, though, is that Danger has its own operating system, distinct from Windows Mobile, as well as a completely different way of doing business than Microsoft.

Meanwhile, Monday's widespread BlackBerry outage--the second major one in the past 12 months--left Research In Motion customers without access to e-mail messages for about three hours. The company blamed "a problem with an internal data routing system within the BlackBerry service infrastructure that had been recently upgraded," according to the statement.

See more CNET content tagged:
Legg Mason Inc., Yahoo! Inc., shareholder, T-Mobile Sidekick, Week in review

7 comments

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Microsoft is using the Oracle Playbook
It worked for Ellison in his takeover of Siebel, PeopleSoft and others, so Microsoft will most likely follow suit. Go for it Microsoft!!
Posted by WJeansonne (480 comments )
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Indeed
Go for it!

Go billions into debt over a company that is a listless as MS is.

That would be great, especially when the next huge MS screwup costs them a few billion they no longer have.

Bye bye MS!
Posted by The_Decider (3097 comments )
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Of Course Yahoo! Told Them Off !
Yahoo! people regard MSFT as a cult of twisted, face-biting psychos. They'd rather be bought out by the Manson Family.
Posted by TheSmellyMoa (68 comments )
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I've figured it out. I'm dropping the Sidekick for the Ogo....
I've figured it out. With Micro$shaft buying Danger Inc. I've put T-Mobile on notice that I'm dropping the service. I've found out that the competition is mainly the Ogo devices which are supposed to be big in Europe. My question. Has anyone got the Ogo to work in the USA yet? If the Ogo doesn't work I'm still dropping the service.
Posted by JCPayne (820 comments )
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I've figured it out. I'm creating a new nickname for MS to look cool...
I've figured it out. JCPayneInTheAssHole likes to give nicknames to Microsoft because he think he looks cool when he does so.
Posted by Fil0403 (1303 comments )
Link Flag
Week in review: Yahoo rejects offer from MS, CNET says they snubbed them
I find it interesting how CNET turns a normal "rejection" into a "snub" just because one of the companies in question is the oh-so-much-loved Microsoft. I think what they really wanted to say was "Yahoo tells Microsoft to go s*ck a d*ck", but they oh-so-big professionalism doesn't let them do that. Or does it?
Either way, Microsoft will buy Yahoo! anyway if it really wants to. As it's used to be said in Computer Science for different reasons, and unfortunately to some people (CNET included seemingly) it's not a matter of "if", but a matter of "when".
Whether or not they would then have the capacity to overthrow Google from the top spot is another issue, but they certainly have the power, resources and skill to do that.
Posted by Fil0403 (1303 comments )
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