Yahoo Says Microsoft Bid is Hurting Business

Published: March 5, 2008

by Alex Woodie

Microsoft's unsolicited bid is having a deleterious effect on Yahoo's ability to do business, the Internet search giant admitted. The problems caused by Microsoft's offer range from recruiting and keeping key employees, to signing partnerships with other businesses, and defending against shareholder lawsuits, according to its 2007 annual report.

Yahoo lays out the multiple ways in which Microsoft's unsolicited January 31 bid is hurting its business in its annual report, which was recently filed with the SEC. While it's too early to put a dollar figure on the damage caused by the 35-day old saga, Microsoft's offer certainly looms large over the Sunnyvale, California, company, and reduces its maneuvering room and its ability to move strategically.

"Microsoft's unsolicited acquisition proposal has created a distraction for our management and uncertainty that may adversely affect our business," Yahoo says in its annual report. The bid has also "created uncertainty" for Yahoo's employees, and "may also create uncertainty for current and potential publishers, advertisers, and other business partners."

The company is also defending itself against four separate shareholder lawsuits in California, and three shareholder lawsuits in Delaware. Although it doesn't mention this in the report, there is also the prospect that these lawsuits will gain class-action status, which would bring even more attention to the actions of Yahoo's board of directors.

For its part, Yahoo's board has remained steadfast in its refusal of Microsoft's offer, declaring that it "substantially undervalues" the company. Microsoft's cash and stock offer is worth somewhere in the neighborhood of $40 billion, depending on how Microsoft's stock is doing at any particular moment in time.

Microsoft is reportedly planning to stage a proxy battle for control of Yahoo's board, all of whom are up for re-election this year. The deadline for nominating candidates to Yahoo's board is March 13.

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