The Wall Street Journal-20080212-Microsoft Stands by Yahoo Bid
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Microsoft Stands by Yahoo Bid
Full Text (635 words)Microsoft Corp. blasted back at Yahoo Inc., saying the Internet company's rejection of its takeover bid didn't alter Microsoft's view that the offer was "full and fair."
The Microsoft response, which followed an earlier Yahoo news release saying that Microsoft's Jan. 31 offer "substantially undervalues" the company, sets the stage for a takeover battle over the Sunnyvale, Calif., Internet company. Microsoft's cash and stock offer effectively values Yahoo at about $41.6 billion, or $28.91 a share, based on Microsoft's share price of $28.21 as of 4 p.m. composite trading on the Nasdaq Stock Market yesterday.
Yahoo's shares rose 67 cents, or 2.3%, to $29.87 on Nasdaq after it rejected Microsoft's offer, suggesting that investors believe a Yahoo acquisition will take place at a higher price. No alternative bidders for the company have emerged, but Yahoo's board has discussed options that could potentially help it stay independent, including a search-ad outsourcing deal with Google Inc., say people familiar with the matter.
Many analysts believe Microsoft will increase its offer, despite the absence of rival bidders, in an effort to secure the goodwill of Yahoo staff and management. Yahoo is pressing for at least $40 a share, according to a person familiar with the matter.
For its part, Microsoft is likely to bide its time to see if Yahoo can drum up any rival bidders. It may also ask Yahoo to prove that it is worth more money, opening up the door to negotiations. At the moment, the Redmond, Wash., software company has no interest in raising its bid, people close the deal say.
In its news release, Yahoo said the Microsoft offer undervalued its "global brand, large world-wide audience, significant recent investments in advertising platforms and future growth prospects, free cash flow and earnings potential, as well as our substantial unconsolidated investments." Yahoo Chief Executive Jerry Yang, in an email to staff filed with regulators, reiterated the company's stated strategy to focus on Yahoo's role as a "starting point" for consumers on the Web and its status as a "must buy" for advertisers.
Microsoft's response, issued in a news release, said "it is unfortunate that Yahoo has not embraced our full and fair proposal to combine our companies." Yahoo's rejection didn't change its belief "in the strategic and financial merits" of the offer, Microsoft said, and indicated it had been discussing the matter with investors. "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 software company reiterated 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 inherent" in the proposal. Such language is typically interpreted to mean a potential acquirer could take such hostile steps as making an offer directly to shareholders.
Some mergers-and-acquisitions observers were puzzled by Yahoo's choice of language in the release. The statement didn't say that the offer was "inadequate," a code word often used by the targets of hostile approaches to squeeze more money from the suitor. The release does say the offer "substantially undervalues" Yahoo. This phrasing suggests that Yahoo's board has undertaken a valuation of the company, a step a board would normally take much later in the negotiation process, merger-and-acquisition lawyers say.
The use of "substantially undervalues" could create some headaches for the Yahoo directors if they end up accepting the current Microsoft offer. In that case, litigious shareholders would likely argue that the board sold the company too inexpensively.
Both companies are focused on courting Yahoo investors to support their positions. Among their top-10 shareholders, Microsoft and Yahoo share five influential ones: Capital Research & Management Co., Barclays PLC's Barclays Global Investors, State Street Corp., Vanguard Group Inc. and Goldman Sachs Group Inc.
