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Microsoft Won't Raise Its Yahoo Offer
Published: April 3, 2008
by Alex Woodie
Microsoft is unlikely to raise its initial unsolicited buyout offer for Yahoo, according a story this week in the Wall Street Journal. Citing unnamed sources close to Microsoft, the WSJ reports that, with no viable alternative offers for Yahoo's business, raising the initial $44.6 billion offer would be equivalent to bidding against itself. Instead, the software giant's strategy is to sit tight and wait for Yahoo to run out of viable options, after which it will accept Microsoft's initial offer.
On January 31, Microsoft offered Yahoo $31 a share for its business, or about $44.6 billion at the time, which Yahoo said "substantially undervalued" the company. However, because that initial offer was tied in part to Microsoft's stock price, and Microsoft's stock price has declined over the past two months, the offer today is worth only about $29 per share, or a couple of billion dollars less, give or take.
For weeks, the have been rumors that Yahoo's board will accept the deal if Microsoft raised its offer into the mid-$30 range. Indeed, the specter of an increased offer was broached last week by a CitiGroup analyst, who said Microsoft could seal the deal with Yahoo by raising its bid to $34.
However, the WSJ's story appears to put the kibosh on any increase in the offer. Instead, with no viable (or at least public) options emerging from a recent road show Yahoo embarked on to drum up interest in purchasing the besieged Internet search giant or at least entering into a content-sharing partnership, Microsoft's leadership is content to watch Yahoo's quest to retain its independence gradually wither away, at which point Yahoo will have no other choice to accept Microsoft's offer.
The current trouble in the financial markets only solidifies Microsoft's decision not to increase its offer for Yahoo, according to the WSJ.
The WSJ also says Microsoft is not interested in nominating a slate of candidates to run against Yahoo's board of directors. Unless Microsoft's strategy has changed, this report contradicts a New York Times story from five weeks ago, in which it said the software giant would launch a proxy battle to place directors on Yahoo's board unless Yahoo steps up to the table and talks to Microsoft.
By all accounts, Yahoo and Microsoft executives have not sat down for official negotiations, although they have engaged in at least one unofficial meeting.
Yahoo installed a roadblock to any potential proxy battles three weeks ago when it delayed indefinitely the deadline for nominating directors to its board. The previous deadline was March 13, and the new deadline is now 10 days following Yahoo's public announcement of the date of its 2008 shareholders meeting, whenever that might be.
Unless it pushes out its 2008 annual meeting, which last year was held in early June, it would appear likely that Yahoo would set a deadline for nominating candidates for its board of directors sometime in late May. If Microsoft is indeed planning a proxy battle—which would be the smart thing to do if it truly wants to acquire Yahoo--it will have had more than three months to prepare its candidates, and will be able to respond swiftly when Yahoo starts the 10-day countdown.
If Microsoft does not truly want to acquire Yahoo, but instead was attempting to highlight the weakness of a rival and instill a chill on its business as it sets its sites on a much more formidable opponent, Google, it has accomplished its goal already.
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