A game to get higher price, Yahoo rejects Microsoft

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Feb 10 2008
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As expected Yahoo Inc.’s board is set to reject Microsoft Corp.’s $44.6 billion takeover bid with an official announcement on Monday’s morning. Yahoo’s board was merely doing their job with this decision as analysts expect the board members to at least do whatever in their capacity to force Microsoft to raise their offer price. The game is almost over for Yahoo but the company which was eating Google Inc.’s dust since is expected to buy more times to prolong the bid.

Microsoft Corp. (Nasdaq: MSFT, stock) could now take its $31 a share – half cash, half stock bid offer directly to the shareholders via tender offer, bypassing the 10-member board but such action would mean an open war with the board members. Alternatively Microsoft could sweeten its bid by raising the offer price to $35 a share – a move that analysts think could conclude the deal. UBS analysts think $34 a share is good enough. Nevertheless not all shareholders would take the $31 as a good deal especially those who bought into the stocks higher than that.

Microsoft $44.6 billion bid for Yahoo rejectedYahoo could be more aggressive and want that Microsoft to raise its price to at least $40 per share again, Microsoft’s previous offer price about a year ago but ended up shooed away. At $40 a share Microsoft is expected to dig deeper into its own pocket for additional $12 billion, although most likely the software giant will borrows for the deal.

It really depends on the big picture. If Microsoft is very damn sure that Yahoo’s already upset shareholders are drooling with the $31 a share offer, a higher bid of $35 per share could just do the trick. Furthermore just because Microsoft had offered $40 per share to Yahoo a year ago doesn’t mean Yahoo’s current (struggling) condition is justifiable enough to ask for the same price tag again, not to mention there’re no other bidders interested in Yahoo.

To put pressure on the board members, Microsoft is expected to set a deadline for its offer. There’s a report that Microsoft could seek to oust Yahoo’s board at its next election should Microsoft sees the current stubborn board as the stumbling block. As much as the internet giant Yahoo’s board wishes to shoo off Microsoft, it better be ready to convince stockholders that it could give a better return on their shares investment than the 62 percent premium offered.

As for sentimental Jerry Yang who founded Yahoo Inc. (Nasdaq: YHOO, stock) with fellow David Filo in 1995, there’s only one alternative for him if he really wish to see his crumbling empire remains independent – to outsource its search advertising business to Google in exchange for hundreds of millions of profit, something that Yahoo hate to do and Google Inc. (Nasdaq: GOOG, stock) likes to have. The bigger question is whether Microsoft could leverage and maintain Yahoo’s large pool of loyal users and internal expertise to further grow the company, not to mention solution to the potential working culture clashes.

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