February 11, 2008 6:55 AM PST

Yahoo rejects Microsoft's bid

Yahoo rejects Microsoft's bid
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Microsoft's big bid for Yahoo

September 10, 2008
Yahoo on Monday announced that it is rejecting Microsoft's multibillion-dollar buyout offer, saying that it undervalues the company.

The announcement had largely been expected, as reports emerged over the weekend such a decision had been made by Yahoo's board of directors.

"Yahoo's board of directors has carefully reviewed Microsoft's unsolicited proposal with Yahoo's management team, and financial and legal advisers, and has unanimously concluded that the proposal is not in the best interests of Yahoo and our stockholders," the company said in a statement Monday.

"After careful evaluation, the board believes that Microsoft's proposal substantially undervalues Yahoo, including our global brand, large worldwide audience, significant recent investments in advertising platforms and future growth prospects, free cash flow, and earnings potential, as well as our substantial unconsolidated investments," the company further noted.

Yahoo said its board will continue to evaluate its strategic options and pursue a path to "maximize value for all stockholders."

"It is unfortunate that Yahoo has not embraced our full and fair proposal to combine our companies," Microsoft said in a statement Monday. "Based on conversations with stakeholders of both companies, we are confident that moving forward promptly to consummate a transaction is in the best interests of all parties," the company statement said.

The software giant reiterated its stance that it "reserves the right to pursue all necessary steps to ensure that Yahoo's shareholders are provided with the opportunity to realize the value" in its proposal.

Microsoft, which on February 1 offered a cash-and-stock deal initially valued at $44.6 billion, is likely to already have contingency plans, such as attempting to create a board of directors that would be friendlier to a Microsoft deal, said proxy solicitors.

Yahoo's annual nomination process for board elections is set to start Wednesday and run through March 14, according to a U.S. Securities and Exchange Commission filing. Each year, all 10 of Yahoo's board seats are up for grabs.

If Microsoft walked away from its offer, where do you think the stock would go?
--Kevin Landis,
chief investment officer,
Firsthand Capital Management

Microsoft may already be eyeing those seats.

"If they haven't done it already, they're in the process of assembling an appropriate slate," 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."

Should Microsoft move forward in launching a proxy fight, it's difficult to say whether it will stake its flag early in the four-week window or wait closer to March 14. Timing is based on the state of negotiations, as well as the personalities who are pushing for a merger, Goldfarb said.

"By launching it early, it says, 'We're serious and ready to go. The pressure is on, and we can always pull back, but know we are there,'" Goldfarb said, adding, "Personality is always a factor in a proxy fight decision. It has a strong effect on how a decision is made."

Should Microsoft launch a hostile bid for Yahoo, one proxy solicitor said, it's likely that Yahoo will go to the Department of Justice and lodge complaints over antitrust issues related to a merged company.

Special coverage
Yang's e-mail to Yahoo staff
CEO Jerry Yang sends his troops an e-mail explaining how Microsoft's bid "substantially undervalues Yahoo."

In the current regulatory environment, Microsoft may surmise that its merger proposal will not be blocked. But Microsoft is also aware that the situation could change after national elections this fall, according to a proxy solicitor who requested anonymity.

Similar measures were taken by PeopleSoft, which nearly five years ago found itself the takeover target of a hostile bid by Oracle.

Although the Department of Justice stepped in and filed a lawsuit to block the merger, the agency was ultimately overruled by a federal judge in San Francisco. The 18-month saga eventually ended in late 2004, when PeopleSoft accepted Oracle's offer, valued at $10.3 billion.

Yahoo's institutional investors are eyeing Microsoft's offer and weighing their options. Should the software giant prevail--either through a proxy contest or tender offer--and a vote is put to Yahoo shareholders, one institutional investor said he would probably take the money.

"They're offering a lot more than the market was willing to pay before their offer. If Microsoft walked away from its offer, where do you think the stock would go?" said Kevin Landis, chief investment officer of Firsthand Capital Management, which manages more than $600 million in assets.

Firsthand's Yahoo stake amounts to more than 300,000 shares, of which half are held in its flagship Firsthand Technology Value fund.

Landis noted that should Yahoo ultimately pass on Microsoft's offer, it may take a year for the stock to rise back to the level of Microsoft's bid. And during that time, investors could have taken Microsoft's cash and reinvested it in other beaten down but promising technology stocks, Landis said.

Yahoo's shares dipped slightly to $29.55 in morning trading as Yahoo released news that it rejected Microsoft's offer. But its share price is still substantially higher than the $19.18 closing price on January 31, a day before Microsoft's buyout bid.

Since late October, Yahoo's share price has fallen off its 52-week high of $34.08 per share.

Firsthand has owned its Yahoo stake for about a year, purchased in part because of Yahoo's launch of its long-awaited Panama search-advertising platform in late 2006; its ownership stake in Chinese business-to-business site Alibaba.com, which had a tremendous IPO on the Hong Kong exchange in November; Yahoo's balance sheet; and its "reasonably" priced stock, Landis said.

Although Yahoo's stock has underperformed during that time, Firsthand has largely maintained its ownership stake in the company. But Landis said he would probably take Microsoft's money, if given a chance.

One thing that Landis, as well as other institutional investors would have to contend with if they own both Yahoo and Microsoft, is what to do with their Microsoft position.

Firsthand has owned Microsoft shares for years, although it's a smaller stake than its Yahoo holdings. Landis, as well as other similarly situated investors will have to consider whether to sell off some of their newly inherited Microsoft position, should a deal go through, or increase the percentage of Microsoft shares in their portfolio.

"Microsoft is already pretty much where we want our position," Landis said. "There could be some selling pressure on Microsoft, but all the (arbitragers) have figured that out."

Since announcing its Yahoo bid, Microsoft's shares have fallen roughly 14 percent, to about $28 this morning.

Cambiar Investors is one Microsoft shareholder that liquidated its holdings after the Yahoo buyout bid news.

"We...liquidated on the news," said Brian Barish, Cambiar president. "Microsoft knows even less about the Internet than Yahoo. I can't see how they can make the business better."

See more CNET content tagged:
Yahoo! Inc., proposal, bid, decision, Microsoft Corp.


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Points 2 Ponder
This was expected, but I reckon Yahoo! is only delaying the inevitable.

Here's what bothers me the most. Yahoo! servers run on FreeBSD, a rock-solid flavour of Unix. Well, Hotmail did too, until Microsoft gobbled it and changed it to Windows. It's another matter that the transition didn't happen overnight. If Microsoft devours Yahoo!, there's little reason to believe that FreeBSD will continue to have a free run. New services will be launched on Windows and old ones, when upgraded, will inch away from FreeBSD.

The Java guys in Yahoo! would feel like an endangered species, mass exodus would ensue and Microsoft would be hard-pressed to replace them. Other employees, disgruntled by the identity crisis, would follow suit.

Of course, this is just one of the possible scenarios and I hope it never happens. I have nothing against Microsoft per se, but I fear Yahoo! wouldn't be Yahoo! anymore if Microsoft owns it. The Redmond giant should begin to embrace the heterogeneity of the Internet before others cut it to size.
Posted by deepanjan_nag (23 comments )
Reply Link Flag
[i]"This was expected, but I reckon Yahoo! is only delaying the
inevitable. "[/i]

I'm not so sure - this same company survived the dot-bust in
pretty decent shape.

[i]"Yahoo! servers run on FreeBSD, a rock-solid flavour of Unix.
Well, Hotmail did too, until Microsoft gobbled it and changed it
to Windows. It's another matter that the transition didn't happen

Hotmail was not much more than SMTP + HTTP. Yahoo is a bit
more complex than that. I still suspect that Microsoft got around
it by munging the agent strings...

[i]" The Java guys in Yahoo! would feel like an endangered
species, mass exodus would ensue and Microsoft would be
hard-pressed to replace them. Other employees, disgruntled by
the identity crisis, would follow suit."[/i]

This is why IMHO Microsoft won't get their money's worth out of
buying it. By the time the dust settles, Google will have likely
sucked in a huge chunk of Yahoo's former marketshare (and a
huge chunk of MSN's), leaving Microsoft way the hell down in
search engine marketshare, very likely lower than it is right now.

Meanwhile, MSFT's share price will take a huge and near-
permanent hit until the debt gets paid back, not to mention their
financials overall... it may end up crippling them at a time when
they really cannot afford to be crippled.

Posted by Penguinisto (5042 comments )
Link Flag
Ballmer is just plain incompetent.
The man has no coherent vision at all as to where he wants to take Microsoft. He has some vague idea but nothing like the clear laser-sharp focus of Jobs or Jeff Bezos or the triumverate at Google. And so Microsoft is muddling along pursuing all sorts of avenues without any apparent overarching strategy. And now the distant second in web search will be acquired by the dismal third with the dismal third taking the helm and expecting somehow this is a winning combination.

Well, there is an underlying theme though, which is to protect and preserve the Windows and Office monopolies. This is really a misguided objective because it ensures that MS will continue to be stuck in yesterday's business model. And isn't that MS's fundamental problem?
Posted by tundraboy (494 comments )
Link Flag
You are spot on. Case in point www.Sympatico.ca
Sympatico ... The internet service of Bell Canada. Microsoft wanted to take over that site...

Now? Sympatico = <a class="jive-link-external" href="http://sympatico.msn.ca/" target="_newWindow">http://sympatico.msn.ca/</a>
Result- Bye bye Sympatico and more then likely it would be bye bye Yahoo!
Posted by JCPayne (820 comments )
Link Flag
Human assets
Yahoo is content more than technology, Google can pick the best employees and part of the board to start a competing service. Its
easier to quickstart when the expertise can be moved in block from
Yahoo to the new service.
Posted by Peter Bonte (316 comments )
Reply Link Flag
It is almost all content
That is not necessarily a bad thing
Posted by Lee in San Diego (608 comments )
Link Flag
memo to staff - start learning VB
If the board and existing employees had ANY clues as to acheving the "values" they think Yahoo has, they would have put them in place last year, the year before or the year before. I assume they are all sharehlders - take the money - you will never get any more for it. Remember Altavista. Remember AOL. Remember webVan. And start learning VB.
Posted by gggg sssss (2285 comments )
Reply Link Flag
If MicroSoft had any clue how to achieve the value that Yahoo has they would not need to buy it from Yahoo. They would just implement it themselves.

The fact is that Yahoo is a viable ongoing company who does seem to enjoy the business they are in.

When you reduce Business to Beancounting it's only a matter of time before you are going to lose your market to someone who likes what they do.

If MicroSoft wanted to maximize value for shareholders (now that they are a beancounter company) they would break themselves up and spin off the parts to shareholders.
Posted by Renegade Knight (13748 comments )
Link Flag
Microsoft should just walk away.
Everybody has said how uncharacteristic this merger is for Microsoft. However, kicking the knees out of a company is not so far from the mark. If Microsoft walks away now, Yahoo! is doomed to have it's shares drop like a rock, law suits from shareholders, and an easy mark for another company to buy them out. In any case, Microsoft's position in Search improves with Yahoo! out of the way.

Now if only Apple would then step in and snap up Yahoo! at a cheap price and fuel it's open source Web-based systems with capital. It would give Apple a leg up in the trend toward Web-centric systems, while still letting them design sexy hardware/software clients that is does so well...
Posted by bob1960 (55 comments )
Reply Link Flag
how to be micro$oft lesson one
how to be micro$oft lesson one...

step one: offer billions for yahoo
step two: get rejected by all 10 board memebers
step three: fill yahoo board of directors with pro-m$-buyout people
step four: buy yahoo anyway
Posted by sadchild (280 comments )
Reply Link Flag
Reminds me of Soros...
step one: Attempt to buy US Presidency
step two: Get rejected by the People
step three: buy off senators and reps
step four: Buy the US Presidency anyway

Look, Yahoo wouldn't be in this situation if they were not a publically traded company. Remember that Yahoo does not own Yahoo. The stockholders do. And when Microsoft offers them lots of money, they'll want to take it. They will also vote in the board members who will make the changes they want. This has nothing to do with MS being MS... this has everything to do with the fact that Yahoo went public and handed ownership to its investors. Investors want money. Microsoft has money. Just that simple. Yahoo can only reject sweet offers for so long, and then the shareholders will change up the board so they can keep making money.
Posted by David Arbogast (1709 comments )
Link Flag
How to be Yhoo, lesson 1
1. Continue to be "me too" on adding stickiness while continuing to devalue the signal to bling ratio.
2. Go from being larger than General Motors (back in 99..market caps compared).
3. Keep people from noticing, for a while, that most of the operating cash came from cds in the bank, provided by people buying t-shares based on perceived future value.
4. When people begin to think you are matured enough conmpany that a p/e over 50 isn't really a value, keep talking about "next year"
Posted by bridge solution (42 comments )
Reply Link Flag
How to cheerlead for MSFT, part MCMXLV
[i]"Continue to be "me too" on adding stickiness while continuing to devalue the signal to bling ratio."[/i]

...and this differs from www.msn.com... how?

[i]"Go from being larger than General Motors (back in 99..market caps compared)"[/i]

You forgot all about the dot-bust. You know, the one that nearly killed the likes of Amazon, made life hard for the likes of Google...

[i]"keep people from noticing, for a while, that most of the operating cash came from cds in the bank, provided by people buying t-shares based on perceived future value."[/i]

...and you can prove this, I trust?

[i]"When people begin to think you are matured enough conmpany that a p/e over 50 isn't really a value, keep talking about "next year""[/i]

YHOO has split five times thus far in its history. MSFT has only split four during the same time period.

This is also the same company that owns Flickr, Zimbra, and a whole wad of fast-growing profitable companies.

It has a forward P/E of 46, not "over 50", so I suspect that simply relying on the last report of 60.something is drastically, well... dumb.

See for yourself (using Google so no one screams "bias!"):
<a class="jive-link-external" href="http://finance.google.com/finance?meta=hl%3Den&#38;q=YHOO" target="_newWindow">http://finance.google.com/finance?meta=hl%3Den&#38;q=YHOO</a>

Finally, a quick peek shows that, even before MSFT's meddling, YHOO hasn't been rated as anything less than "hold" for quite awhile:
<a class="jive-link-external" href="http://www.marketwatch.com/tools/quotes/ratings.asp?symb=YHOO&#38;sid=16665&#38;siteid=mktw" target="_newWindow">http://www.marketwatch.com/tools/quotes/ratings.asp?symb=YHOO&#38;sid=16665&#38;siteid=mktw</a>

So I hardly believe that YHOO is swirling the drain, as you claim.

Posted by Penguinisto (5042 comments )
Link Flag
Big Brother--Little Brother?
Who would be swallowing who, is the question, and will the market be the one to get indigestion if it happens? I use Yahoo with a PC that runs Windows. It has a chip by Intel. It was manufactured by Compaq. I like being able to choose the combination of these factors that suits me. One day soon, if regulations remain loose, we all will be captives of one entity, BigBadComputer.com. We will probably be able to talk to it and it will talk back in a commanding voice while watching us thru a built-in webcam.
No, wait...that was "1984"...nevermind!
Posted by Imperfect Nerd (16 comments )
Reply Link Flag
Becoming MS - Step 2
IF you cannot innovate...imitate.
IF that fails, then open wallet &#38; buy the competition ("threat") outright.
IF that fails, then copy the competition &#38; bankrupt them in court after they try to suit you.
IF that fails, then hostel take over corporate raiders brown boots charge in &#38; take it from them.

Extend / Embrace / Extinguish
MS : Where do you want to go today?
Posted by Llib Setag (951 comments )
Reply Link Flag
no wonder Yahoo in trouble
Let's see - their stock price was around $19 and sinking with no real hopes of getting it back up substantially. It jumps to $29 with Microsoft's offer but Yahoo board states it doesn't fully value their worth? With this kind of math, they're doomed.
Posted by oxtail01 (308 comments )
Reply Link Flag
Today's Market....
Doesn't necessarily reflect what they have planned for the future. Many good stocks are down right now. What if they (Yahoo!) believe they can get their stock up in a few years because of projects they've got on the backburner?
Posted by SenorFrog (119 comments )
Link Flag
Glad to see Yahoo not DUMB enough to fall for
such a dumb merger. Let Microsoft go rot in their own corner. THANK YOU YAHOO!!! Mission Accomplished!!!!
Posted by JCPayne (820 comments )
Reply Link Flag
Yahoo stock right now higher than Microsoft's. OUCH.
Posted by JCPayne (820 comments )
Reply Link Flag
does that mean?? Back to accounting 101 for you
Posted by gggg sssss (2285 comments )
Link Flag

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