Yahoo Rejects Microsoft Bid

Yahoo Board to Spurn $44B Microsoft Bid
Saturday February 9, 11:37 pm ET

By Michael Liedtke, AP Business Writer

Yahoo Board Intends to Turn Down Microsoft's Unsolicited $44.6 Billion Takeover Bid

SAN FRANCISCO (AP) -- Yahoo Inc.'s board will reject Microsoft Corp.'s $44.6 billion takeover bid after concluding the unsolicited offer undervalues the slumping Internet pioneer, a person familiar with the situation said Saturday.
The decision could provoke a showdown between two of the world's
most prominent technology companies with Internet search leader Google
Inc. looming in the background. Leery of Microsoft expanding its turf
on the Internet, Google already has offered to help Yahoo avert a
takeover and urged antitrust regulators to take a hard look at the
proposed deal.

If the world's largest software maker wants Yahoo
badly enough, Microsoft could try to override Yahoo's board by taking
its offer -- originally valued at $31 per share -- directly to the
shareholders. Pursuing that risky route probably will require Microsoft
to attempt to oust Yahoo's current 10-member board.

Alternatively,
Microsoft could sweeten its bid. Many analysts believe Microsoft is
prepared to offer as much as $35 per share for Yahoo, which still
boasts one of the Internet's largest audiences and most powerful
advertising vehicles despite a prolonged slump that has hammered its
stock.

Yahoo's board reached the decision after exploring a wide
variety of alternatives during the past week, according to the person
who spoke to The Associated Press. The person didn't want to be
identified because the reasons for Yahoo's rebuff won't be officially
spelled out until Monday morning.

Microsoft and Yahoo declined to comment Saturday on the decision, first reported by The Wall Street Journal on its Web site.

Yahoo's
board concluded Microsoft's offer is inadequate even though the company
couldn't find any other potential bidders willing to offer a higher
price.

Without other suitors on the horizon, Yahoo has had little
choice but to turn a cold shoulder toward Microsoft if the board hopes
to fulfill its responsibility to fetch the highest price possible for
the company, said technology investment banker Ken Marlin.

"You
would expect Yahoo's board to reject Microsoft at first," Marlin said.
"If they didn't, they would be accused of malfeasance."

But by
spurning Microsoft, Yahoo risks further alienating shareholders already
upset about management missteps that have led to five consecutive
quarters of declining profits.

The downturn caused Yahoo's stock
price to plummet by more than 40 percent, erasing about $20 billion in
shareholder wealth, in the three months leading up to Microsoft's bid.

Seizing
on an opportunity to expand its clout on the Internet, Microsoft
dangled a takeover offer that was 62 percent above Yahoo's stock price
of just $19.18 when the bid was announced Feb. 1. Yahoo shares ended
the past week at $29.20.

Led by company co-founder and board
member Jerry Yang, Yahoo now will be under intense pressure to lay out
a strategy that will prevent its stock price from collapsing again.
What's more, Yang and the rest of the management team must convince
Wall Street that they can boost Yahoo's market value beyond Microsoft's
offer.

Yahoo's shares traded at $31 as recently as November, but
have eroded steadily amid concerns about the slowing economy and
frustration with the slow pace of a turnaround that Yang promised last
June when he replaced former movie studio mogul Terry Semel as Yahoo's
chief executive officer.

This isn't the first time that Yahoo has
spurned Microsoft. The Redmond, Wash.-based company offered $40 per
share to buy Yahoo a year ago only to be shooed away by Semel,
according to a person familiar with the matter. The person didn't want
to be identified because that bid was never made public.

Yahoo
now may want that Microsoft to raise its price to at least $40 per
share again. That would force Microsoft to raise its current offer by
about $12 billion -- a high price that might alarm its own shareholders.

Microsoft's
stock price already has slid 12 percent since the company announced its
Yahoo bid, reflecting concerns about the deal bogging down amid
potential management distractions, sagging employee morale and other
headaches that frequently arise when two big companies are combined.

Although it isn't involved directly in the deal, Google is the main reason Yahoo is being pursued by Microsoft.

Yahoo has struggled largely because it hasn't been able to target online ads as effectively as Google.

Microsoft
believes Yahoo's brand, engineers, audience and services will provide
the company with valuable weapons in its so far unsuccessful attempt to
narrow Google's huge lead in the lucrative Internet search and
advertising markets.

As it examined ways to thwart Microsoft,
Yahoo considered an advertising partnership with Google -- an alliance
long favored by analysts who believe it would boost the profits of both
companies. It was unclear Saturday if Yahoo's plans for boosting its
stock price include a Google partnership, which would probably face
antitrust issues.

A Microsoft takeover of Yahoo would also be
scrutinized by antitrust regulators in the United States and Europe.
The antitrust uncertainties could be cited as one of the reasons that
Yahoo's board decided to spurn Microsoft.