Yahoo Reiterates Stance After Threat by Microsoft
Search Engine Says Buyout Bid Is Low

By Kim Hart
Washington Post Staff Writer
Tuesday, April 8, 2008

Yahoo, responding to pressure from Microsoft to accept its buyout offer within three weeks, responded yesterday saying it was open to a deal but was still looking for better alternatives.

In a letter to Microsoft chief executive Steven A. Ballmer, Yahoo chief executive Jerry Yang and chairman Roy Bostock reiterated their position that Microsoft's $44.6 billion unsolicited offer "substantially undervalues" the Internet company. On Saturday, Ballmer sent a letter to Yahoo's board threatening a hostile takeover unless Yahoo agreed to a merger by the end of April.

The latest exchange intensifies the stalemate between the two technology companies and increases the likelihood of a contentious boardroom battle. If Yahoo ignores Microsoft's ultimatum, Ballmer said he "will be compelled to take our case directly to your shareholders," including a proxy fight to elect an alternative slate of directors for Yahoo's board.

Such action, Yang and Bostock wrote, would be "counterproductive and inconsistent with your stated objective of a friendly transaction," adding that "we will not allow you or anyone else to acquire the company for anything less than its full value."

Microsoft offered to buy Yahoo for $31 a share on Jan. 31, in a bid to strengthen its position in online advertising and to better compete against Google, which is the runaway leader in Internet advertising revenue. Yahoo formally rejected Microsoft's offer on Feb. 11 and has been looking for alternative deals.

Since then, worsening economic conditions have depressed each company's stock price. Microsoft held steady yesterday at $29.16 a share. Shares of Yahoo closed down 66 cents at $27.70. While Ballmer suggested that the poor economic environment makes Microsoft's offer "even more significant today," Yahoo responded by pointing out that the fall in Microsoft's own stock price renders the offer "significantly lower than it was when you made your initial proposal."

Since the initial bid, Google has completed its acquisition of DoubleClick, leaving the search giant well positioned to go after the display advertising market.

Marianne Wolk, senior Internet analyst at Susquehanna Financial Group, said Google's continued progress is putting even more competitive pressure on both Microsoft and Yahoo. "Time is working against Yahoo," she said. Microsoft and Yahoo "need to move quickly to build a strong combined branded effort to thwart an increasingly strong Google."

The fact that Yahoo has not found an alternative bidder or partner weakens its ability to negotiate, analysts said.

In a note to investors, Citigroup analyst Mark S. Mahaney said Microsoft's latest advance "may well force Yahoo's hand and bring closure to the negotiations."

In his letter, Ballmer warned Yahoo that resorting to hostile takeover tactics "will have an undesirable impact on the value of your company . . . which will be reflected in the terms of our proposal."

Yahoo has maintained its desire to stay independent and has been developing new products for advertisers and consumers. Yesterday, the company introduced an advertising platform called Amp that will deliver ads based on consumers' surfing habits.

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