February 11, 2008 3:38 PM PST

What's Microsoft's next move in fight for Yahoo?

What's Microsoft's next move in fight for Yahoo?
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A correction was made to this story. Read below for details.

With Yahoo issuing a resounding "no" to its current buyout bid, Microsoft has one of two levers it can pull, said some analysts, investors, and proxy solicitors.

The software giant can up the ante on its initial buyout bid of $44.6 billion and hope 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 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 to at least $35 a share.

"The Yahoo response does not change our belief in the strategic and financial merits of our proposal. As we have said previously, Microsoft reserves the right to pursue all necessary steps to ensure that Yahoo's shareholders are provided with the opportunity to realize the value inherent in our proposal," Microsoft said in a statement Monday in response to Yahoo's rejection of its offer.

Without a competing suitor having emerged, Microsoft may continue to argue that its bid is a fair one, said Ken Allen, a software investment analyst at T. Rowe Price, a major institutional investor in Yahoo.

"Microsoft offered a large premium, and no other bidders have emerged, so Microsoft's decision to reiterate their existing proposal seems to make sense for them," Allen said. "Microsoft may have better leverage (in) taking their bid to Yahoo's shareholders, since Yahoo's board rejected the offer. It's less clear what Yahoo shareholders think of it."

Yahoo shareholders could try to intervene, similar to a situation that BEA Systems recently faced. Late last year, Oracle made an unsolicited bid for BEA, a middleware software company. But after rejecting the offer, BEA's largest investor, Carl Icahn, intervened and directly negotiated a deal with Oracle, which in the end was higher than Oracle's initial offer but less than BEA's desired striking point.

Absent of a higher bid, Microsoft is likely to deliver a 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 window for shareholders to nominate their own candidates opens Wednesday and runs through March 14, according to Yahoo's Securities and Exchange Commission filing.

Before the punching begins, the persistent buyer will try to woo a reluctant target with a gentle approach in the early days of the window. That window is a time when shareholders can name opposition board candidates for investors to vote on at the next annual shareholders meeting.

But as the deadline for the window draws near, all niceties get set aside. In many cases, the buyer turns hostile and initiates a one-two punch.

First, a tender offer is floated out, even if the reluctant buyer has a so-called poison pill, said one seasoned proxy solicitor, who requested anonymity.

A tender offer gives investors an assurance that a bona fide offer is on the table, even if the buyer will not take receipt of the shares, as long as the poison pill is in place, the proxy solicitor said.

So why bother?

"It's something that the (opposition board) can say they will offer, rather than say, elect my guys and they may do this," the proxy solicitor said.

Mom-and-pop investors are listening. Individual investor Eric Jackson, who holds 96 Yahoo shares, runs a Yahoo investor Web site, which is being used as a place for retail investors to log in the number of shares that they own and act as a united voice on shareholder matters.

"We have about 100 shareholders who own about 2.1 million shares," Jackson said. "We're standing up and saying we're willing to tender our shares to the highest bidder."

After the tender offer comes the proxy fight.

With the tender offer out there, the hostile buyer will then typically introduce its opposition candidates to replace the company's board seats that are up for election.

Should the opposition candidates win and they represent a majority on the board, the board can then change the bylaws and remove the poison pill.

"If they haven't done it already, they're in the process of assembling an appropriate slate (of opposition board members)," said Bruce Goldfarb, a veteran proxy solicitor. "It's fair to assume they will run for board seats, and it won't take them long to fill the slate. We're talking Microsoft here. They have resources and access to countless high-quality candidates to be a director."

Yahoo's directors are familiar with investors' wrath. Last year, Yahoo directors who served on the compensation committee had roughly 30 percent of votes withheld for their re-election--a high percentage given most directors face a 5 percent to 15 percent withhold vote under normal circumstances, proxy solicitors say.

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

 

Correction: This story mischaracterized comments by Ken Allen of T. Rowe Price. They represent his views on how Microsoft may be evaluating its steps toward acquiring Yahoo.

See more CNET content tagged:
shareholder, BEA Systems Inc., investor, bid, Yahoo! Inc.

60 comments

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What they (MS) should do
is drop their bid by $1 per share, which is still a sweet deal, and take it to the share holders.
Along with a note about how much their board just cost them.
I think you would see Yahoo!'s board of directors out on the street tomorrow...
Posted by catch23 (436 comments )
Reply Link Flag
The SEC would flay MSFT alive.
You forget - Microsoft has to abide by the rules, especially as a convicted monopolist. There's also a nasty little potential for a lawsuit in there as well, and a hostile takeover is a tight-rope dance as it is, legally speaking, especially when you're out to take over a competitor.

Also, you're describing what has already been described up top - a tender offer. Yours has a nice twist, but seeing the money drop would spook even the most daring day-trader into telling MSFT to go take a flying leap.

To top everything else off, there's a HUGE risk that everyone seems to miss out on: The governments of the United States and/or the EU may block the deal outright (or at least bog it way the hell down), leaving MSFT with a lot of suddenly frozen money that it can't do anything with until the deal goes through or dies.

You see, YHOO can get just as nasty about it at that stage as MSFT can at this one. Imagine YHOO dragging things out as long as possible w/ the regulators, while MSFT has a $44bn anchor hanging around its neck.

You can probably see by now why it's in MSFT's best interests to play nice. It really has no choice. For all the tough talk, they know full well that they're just as vulnerable and exposed as YHOO is.

...and don't think that Apple, Google, RedHat, Sony, Nintendo, MySQL/Sun, Oracle, and all of MSFT's numerous competitors won't take advantage of things while MSFT twists in the regulatory wind with little-to-no cash on hand... ;)

/P
Posted by Penguinisto (5042 comments )
Link Flag
Day Traders... gotta love 'em.
Err, dunno what to tell the guy running his little 'grassroots' blog, but unless (and until) the votes get counted, he can say whatever he likes and have a perfect chance of being wrong. See also "Astroturfing".

No, I'm not saying that he is, but I am saying that it's stupendously easy to 'stuff the ballot' on a public blog and say you own XYZ shares of YHOO.

I won't hold my breath until the shareholders actually meet. I also expect MSFT to try every dirty trick in the book.

No makey either way though... Either MSFT loses and continues to dwindle, or MSFT wins and goes into massive debt.

Google must be laughing it's collective butt off right about now...

/P
Posted by Penguinisto (5042 comments )
Reply Link Flag
Lawyer tricks
"he can say whatever he likes and have a perfect chance of being wrong. See also "Astroturfing"."

"No, I'm not saying that he is"

Um, you just did. If you aren't saying that he is, then why did you make the reference in the first place? If you don't mean it, then leave the comment out entirely. You can't make comments like that and then try to pull them back as if they didn't exist.

The ball is red.

I'm not saying the ball is red.

Do you see the conflict there? You can't say one thing and then immediately say you are not (ack! Double negative!).

It's like telling everyone horrible things about John Smith and then stating that you aren't. Lawyers pull that sort of dirty trick to influence juries by saying something that they know the judge will then tell them to disregard. Too late, it's in the jurors' minds now.


As for the content of your post, you appear to have if fixed in mind that Microsoft will fail by buying Yahoo!, and if they don't, they will fail. Microsoft = Fail in pretty much every post you make.

Reality is different however. They aren't in any danger of going out of business no matter how much you keep wishing for it. You may not like their practices, but you do have to admit that they are successful or else they wouldn't be as rich and dominating as they are now.

Anyways, old argument, no real answer that you'll accept as long as your reality blinders are on, so I'll move on.
Posted by Vegaman_Dan (6683 comments )
Link Flag
"Either MSFT loses and continues to dwindle,...
... or MSFT wins and goes into massive debt.

Google must be laughing it's collective butt off right about now...". Where are the well researched documentation and the analysis tools used to determine these projections - "Penguinisto"? Until then, how about standing back and watch the market conditions take it own course. Besides, perhaps you already do know for sure like some of us that this is perhaps the most likely outcome. ;-) !
Posted by Commander_Spock (3123 comments )
Link Flag
The good news. If M$ buys Yahoo- the end of M$ is near!!!!
Microsoft is going to spend GOBBS of money to buy Yahoo, and in so doing they will bring about their inevitable demise. Tons of shareholders will cash out of the Yahoo transaction leaving a hugely devalued stock.... Microsoft will be left with a stock that plunges (like Shareholders did to AOL Time Warner.) Meaning Microsoft would blow their entire purse to shareholders and would be left with way---- less cash on hand....

Microsoft's actions proves to the worrrld that their future is on the line and they need Yahoo or perish. However Microsoft will be in debt from this deal and will likely ruin Yahoo to the point where tons of Yahoo employees will leave Yahoo possibly infavour of starting up new companies.

Some of those companies will probably go on to work with Google which is more open source then Microsoft. So that leaves Microsoft in one corner having blown all their money and Google in the other corner cool comfortable and collected. I'm beginning to agree with Yahoo going to Microsoft if it will get rid of them once and for all. Bring on the merger....
Posted by JCPayne (820 comments )
Reply Link Flag
Value
The value of Yahoo stock once Microsoft owns it is irrelevant. MSFT is not interested in the stock, it is interested in the technology, the employees and the market share. If that{s a good investment is another question, but Yahoo could go down to zero and stil lmake no difference to MS (it would actually benefit them, since they could acquire the rest of the company for less money).
And again, whatever debt Microsoft has to issue in order to cover the deal, will be in the bank by the end of the year.
Posted by Hernys (744 comments )
Link Flag
Once a greedy monopoly...
ALWAYS a greedy monopoly!

IF you cannot innovate...imitate.
IF that fails, then open wallet & buy the competition ("threat")
outright.
IF that fails, then copy the competition & bankrupt them in court
after they try to suit you.
IF that fails, then the hostel take over corporate raider brown
boots charge in & take it from them.

Extend / Embrace / Extinguish
MS : Where do you want to go today?
Posted by Llib Setag (951 comments )
Reply Link Flag
What do you know folks.. "Llib Setag"...
... inadvertently missed the "golfing" and "fishing trips"; now, he/she wishes that we all believe that he/she was actually on those "trips" while the poor Redmond guys dined in their "cages" unable to see what the world looked like outside. Perhaps, this was the reason why they came up with "Windows"... :-( !
Posted by Commander_Spock (3123 comments )
Link Flag
Microsoft Can't Save Yahoo!
Google may be the driving force behind the acquisition. But a portfolio of joint Yahoo/Microsoft assets does not guarantee their ability to overtake the search giant. Both companies are trailing because of poor product portfolios, poor monetization, and a failure to innovate. The combined company may create a more assertive ?also ran? player in the industry, but that player is not much more likely to beat Google.

There?s an interesting analysis of what Yahoo?s new advertising platform would have to be at <a class="jive-link-external" href="http://www.broodingsavage.com" target="_newWindow">http://www.broodingsavage.com</a>
Posted by BILLinBCN (5 comments )
Reply Link Flag
Next Move? Steve Ballmer Head-Buts the Building in Sunnyvale
Yeah, Steve, do that and bellow and stuff and they'll fold. You'll show 'em!
Posted by Sumatra-Bosch (526 comments )
Reply Link Flag
Microsoft shouln't budge. Let Yahoo go down
Yahoo's stock has been on the decline for some time now and the ONLY reason it went up slightly was the announcement that Microsoft had tendered an offer to buy them.

I don't think anything is going to save Yahoo from going down in value.

If I were Microsoft and still wanted Yahoo (I don't have a clue) then I would wait until their stock value is so low that Microsoft won't have to borrow to buy them.

All you Yahoo shareholders should remember this at the next shareholder's meeting and vote the bums out.

Don't get me wrong. I'm not a big Steve "put down that chair" Balmer fan but I just don't think Yahoo is worth that much.

If Microsoft counters with a higher offer then they need to fire Lindey.
Posted by fred dunn (793 comments )
Reply Link Flag
Problem is, it likely won't.
If MSFT walked away, the temporary bubble of speculation on the per share price of YHOO would drop back to normal levels, and life would continue on as normal.

MSFT would have to wait for about 5 years or more for Yahoo to drop to a buyable level, and even then we're talking "maybe".

(Hell, back in 2003-2004 or so, Novell once said publicly that it only had about 3-4 years of cash left in it... then they bought SuSE, threw in with Linux, and they've been making decent profit and growth ever since).

/P
Posted by Penguinisto (5042 comments )
Link Flag
Yahoo: Lost in the search...
I find Yahoo to be used up, and washed out.
Have you been to the
Ghost Town of Yahoo 360 lately?
Millions of abandoned profiles.

Anyways, If Yahoo had a search engine that actually kept up on listings,
I might not be so Harsh and Brutal.

In Summary: Yahoo!
Should be so Lucky to even get a decent offer.

Should they continue to 'Run' themselves,
They will go nowheres but down.
Plain and Simple.
..::NoLimitDomains::..
Posted by nolimitdomains (1 comment )
Reply Link Flag
This deal will "Netscape" Yahoo!
Seriously, Microsoft will likely ditch most of Yahoo!'s offerings in favor of MSN or Windows Live offerings, and that will cause a colossal brain drain at Yahoo! Given that part of Ballmer's rationale is that the combining efforts would hold strategic value for the combined company, there is no good that can come from that.

The shareholders may initially be happy about this deal. If MS doesn't get a return on its investment, which seems likely if they dump Yahoo's services and the brains leave, the shareholders will not be happy long-term.
Posted by rdean (119 comments )
Reply Link Flag
"If MS doesn't get a return on its investment,...
... which seems likely if they dump Yahoo's services". What is your "evidence" that these will be the results.
Posted by Commander_Spock (3123 comments )
Link Flag
Easy defense for Yahoo.
Just sign some kind of long term contract with Google. It would need to be something that Yahoo would not mind, but Microsoft would hate. What would Microsoft think if every Yahoo page for the next 10 years was required to have, "The evil empire must die" at the top. :)
Posted by ralfthedog (1589 comments )
Reply Link Flag
Yahoo should try to snag ClearChannel or XM-Sirius Radio.
Then they can add one of the two of those to their media arsenal.
Posted by JCPayne (820 comments )
Reply Link Flag
There is a better alt to Goo or Yoo , it is anoox
Because AnooX is fundamentally better for these reasons:
1- AnooX search results are are Democratically powered by the Knowledge of the People, what is called the "Wisdom of the Crowds".
2- Cost of Advertising on AnooX is much lower since AnooX is "not-profit-motivated".
3- AnooX is operated on an Open &#38; decentralized model

In summary AnooX is doing for search engine business what MySQL did for database, which means to open it up and to greatly reduce the cost for small businesses. You can check them out here: www.anoox.com

I give you example of our small web site development company, we have SAVED about $12,000 in search engine Advertising over the last 12 months since we started Advertising on Anoox and our sales have gone up slightly too. Good for us, Bad for Google share holders, Go Anoox :)

P.S., For sake of full disclosure we benefit from Anoox as Advertiser, as Affiliate and get free chat room from them as well as use their free news Blog.
Posted by Info_Max (52 comments )
Reply Link Flag
I say go anoox too
We have been using Anoox for a while too and I say it is one of the best resoures on the net. Our company has saved about $2000 per month since we started advertising on anoox and we have got lots of value from the chat room that they offer as well as the social bookmarking service that they have.
So i could not agree more that anoox is to Yahoo/Goole what mysql is to Oracle &#38; IBM db, that is a much lower cost alt and a far more open one.
Posted by Sea of Cortez (67 comments )
Link Flag
 

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