Yahoo to Reject $44.6 Billion Microsoft Bid, WSJ Says (Update3)
By Ari Levy
Feb. 9 (Bloomberg) — Yahoo! Inc., the world’s second most popular Internet search engine, plans to reject Microsoft Corp.’s $44.6 billion unsolicited takeover offer, the Wall Street Journal reported, citing a person familiar with the situation.
The board decided the price “massively undervalues” the Sunnyvale, California-based company, and Yahoo may face risks because regulators could oppose the combination, the newspaper said today. On Feb. 1, Microsoft offered $31 a share in cash and stock for Yahoo. The company wants at least $40, or more than $12 billion more than Microsoft offered, the Journal said.
Chief Executive Officer Jerry Yang, who said this week that Yahoo is examining its options, may consider a partnership with bigger rival Google Inc. or ways to wrest a higher offer from Microsoft. Yahoo’s failure to crack Google’s dominance in search led to eight straight profit declines and cut the stock’s value in half in the two years before the offer.
“Yahoo still has one of the largest brands on the Internet,” Bill Tancer, general manager at researcher Hitwise Pty. in San Francisco, said in an interview before the report. “It confines Google to continue to grow their revenue from a single revenue stream, which is search.”
Yahoo directors, who met over the past week to weigh the offer, will send a letter to Redmond, Washington-based Microsoft on Monday that outlines its position, the Journal said.
“The board is continuing to evaluate the proposal,” Yahoo spokeswoman Tracy Schmaler said today after the report. “We’re not commenting beyond that.” Microsoft spokesmen Frank Shaw and Bill Cox didn’t immediately return calls.
Yahoo is betting Microsoft won’t take hostile measures to win the bid, the Journal said, even though the software maker has indicated that is a possibility. A person familiar with the matter said this week that Microsoft may seek to oust Yahoo board members should they reject its offer.
“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 CEO Steven Ballmer said in a letter to Yahoo’s board that was made public on Feb. 1.
Yahoo rose 16 cents to $29.20 yesterday in Nasdaq Stock Market trading and Microsoft added 44 cents to $28.56.
The offer is 62 percent more than Yahoo’s stock price before the bid. The shares have climbed above the value of the cash-and- stock bid, showing shareholders expect a higher price. Microsoft plans to let investors choose cash or stock, at a ratio that will end up being about 50-50.
$34 to $37
Microsoft shares have declined since the bid, lowering the value of the stock portion and pushing the total value of the deal to about $29.08 a share. Microsoft may have to bid $34 to $37, said UBS AG’s Heather Bellini, the top-ranked software analyst by Institutional Investor magazine.
Since the bid is half cash and half stock, Microsoft may fix the offer at $31 before pursuing an increase, so the value doesn’t decline with its shares, she said.
Yahoo is getting financial advice from Goldman Sachs Group Inc., Lehman Brothers Holdings Inc. and Moelis & Co., according to two people familiar with the matter. Spokespeople for Goldman and Lehman declined to comment and a Moelis representative didn’t immediately return a phone call.
Morgan Stanley and Blackstone Group LP are counseling Microsoft.
Yang, 39, has resisted letting go of the company he co- founded in 1995 as a graduate student at Stanford University. Initially a way to help people find their favorite places on the Web, Yahoo became the most-visited U.S. Internet site by combining search, news, sports and finance in a single place.
He replaced Terry Semel as chief in June after Yahoo’s share of Web searches tumbled and the company lost sales of banner ads.
Yahoo might seek help from rivals, soliciting other bids or seeking partnerships with Rupert Murdoch’s News Corp. or Google to thwart Microsoft, according to analysts including Stanford Group Co.’s Clayton Moran.
The New York Times reported Feb. 4 that Google CEO Eric Schmidt contacted Yang to suggest a partnership between their companies. A partnership with Google may allow Yahoo to outsource its search service, shedding the costs of running its own search engine and sharing ad revenue with its larger rival.
Google spokesman Matt Furman didn’t immediately respond to an e-mail today seeking comment.
While a search and advertising partnership with Google is an option, it would face stiff regulatory scrutiny, Moran said. News Corp. isn’t interested in bidding for Yahoo, Murdoch said on a Feb. 4 conference call. That means Yang’s options probably won’t pan out, said Andrew Frank, a New York-based analyst at research firm Gartner Inc.
The U.S. Justice Department is “interested” in reviewing the antitrust implications of a Yahoo-Microsoft transaction, agency spokeswoman Gina Talamona said last week. Neelie Kroes, commissioner of competition for the European Commission, said her agency also would scrutinize a deal.
Google has grown faster than Microsoft in every quarter since Google’s 2004 initial public offering as its search engine won more users. Even after CEO Steve Ballmer’s efforts to build a new search engine from scratch, Google outsold Microsoft in Internet ads by 7-to-1 in Microsoft’s latest fiscal year.
Microsoft and Yahoo combined would still fail to seize the lead in Internet search. Google, based in Mountain View, California, got 56 percent of U.S. Web queries in December, which is almost double Yahoo and Microsoft’s shares together, according to New York-based Nielsen Online.
To contact the reporter on this story: Ari Levy in San Francisco at
Last Updated: February 9, 2008 14:37 EST