February 10, 2008

Yahoo to turn down Microsoft offer

Yahoo, the internet company that has failed to crack Google’s dominance of web search, plans to reject a $44.6 billion takeover bid from Microsoft, a person familiar with the situation said. The board spent a week reviewing the $31-per-share unsolicited offer before deciding it was too low, and directors are likely to reject it tomorrow, said the person, who declined to be identified because the discussions aren’t public. Yahoo wants at least $40, the Wall Street Journal reported yesterday.

The decision steps up pressure on co-founder Jerry Yang to present investors with a strategy to revive a stock that lost half its value in the two years before the offer. He may look to outsource its search efforts to Google or find another buyer, though analysts said it is unlikely that any other options will emerge and Microsoft may make a higher offer to win.

UBS’ Heather Bellini said last week Microsoft may have to bid $34 to $37. Yahoo has posted eight straight quarters of profit declines and spent years trying and failing to catch up with Google in web queries and the lucrative market for ads linked to search results. Together, Microsoft and Yahoo would control more than a quarter of the market for animated ads and colourful display banners at the top of web pages.

Yahoo is betting Microsoft won’t take hostile measures to win the bid, the Journal said, even though the software maker has indicated that is a possibility. A person familiar with the matter said last week Microsoft may seek to oust Yahoo directors should they reject its offer. Yahoo might seek help from rivals, soliciting other bids or seeking partnerships with Rupert Murdoch’s News Corp or Google to thwart Microsoft, feel analysts including Stanford Group’s Clayton Moran.

Google CEO Eric Schmidt contacted Yang to suggest a partnership, the New York Times reported February 4. A partnership with Mountain View, California-based Google may allow Yahoo to outsource its search service, shedding the costs of running its own search engine and sharing ad revenue with its larger rival. Google spokesman Matt Furman declined to comment.

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