By Ken Fisher | Published: February 09, 2008 – 12:59PM CT
Reported first this morning by the Wall Street Journal, a person “familiar” with the situation says that Yahoo believed the offer of $31 a share “massively undervalues” the company and provides no protections for the risks Yahoo would incur by entering into a deal that would be heavily vetted and possibly overturned by regulators. According to the WSJ‘s source, Yahoo is looking for bids north of $40 per share, or something in the $56+ billion range. At $31 per share, the board apparently feels as though Microsoft is trying to “steal” the company and take advantage of recent weaknesses. Such “weaknesses” aren’t necessarily recent, however. Yahoo’s stock price hasn’t been north of $40 since the end of 2005.
$44.6 billion was already steep for Microsoft, which has admitted that the company would need to take on debt to get the deal done. Adding another $12+ billion to the price only makes it harder for Microsoft to convince shareholders that this is a good idea. Microsoft’s other option is to push forward aggressively with this offer and attempt to battle or overturn the board, but who really expects Microsoft to risk royally irritating the very same people it needs to run Yahoo in the first place? How bad does Microsoft want it?
Yahoo may not truly be looking for $40 per share, however, and could just be stalling for time. Yesterday it was widely reported that the company might form a pact with Google in order to fend off Microsoft, but that move isn’t without its own problems. At the very least, Microsoft is reportedly eager to argue that Google’s involvement is inappropriate, inasmuch as the #1 player in search ads could be seen as having monopolistic intentions by doing a deal with the #2 player, Yahoo. We all know how Google feels about the deal.
According to the WSJ‘s source, the Yahoo board will be sending Microsoft a letter on Monday detailing their position.