Microsoft Walks, But Some See Just Another Negotiating Ploy
DOW JONES NEWSWIRES
SAN FRANSICO -(Dow Jones)- Yahoo Inc. (YHOO) claimed victory late Saturday after Microsoft Corp. (MSFT) said it was walking away from its unsolicited takeover attempt for the struggling Internet giant, but some observers said the battle for control of Yahoo may not necessarily be over.
Microsoft said earlier Saturday that it was walking away from its $31 per share offer, which initially valued Yahoo at $44.6 billion , because it was unable to reach an agreement with Yahoo over price. Microsoft noted that it had been willing to raise its bid by about $5 billion .
"We don't think its over. It's clear that Microsoft needs Yahoo and there is going to be outrageous pressure on Yahoo management from shareholders," said Gene Munster , analyst at Piper Jaffray.
That's because Yahoo shares were seen to open Monday at about $21 , down from Friday's close of $28.67 , analysts and arbitrageurs said. Investors unhappy about Yahoo's prospects had driven the company's shares down to $19.18 the day before Microsoft announced its $31 per share offer.
Analysts and arbitrageurs said Yahoo shares wouldn't likely fall to the $19 range because some shareholders would be betting that Microsoft was merely trying to ratchet up the pressure on Yahoo . Several shareholders have already sued Yahoo for rejecting Microsoft's bid.
Microsoft's decision to walk away recalls a similar move by software maker Oracle Corp. (ORCL) last year in its attempt to win control of BEA Systems Inc. After BEA turned down Oracle's offer, Oracle withdrew its bid and went to great lengths to highlight the effort it made to reach a deal with BEA. Pressure from shareholders ultimately forced BEA management to agree to a deal with Oracle.
But Yahoo Chairman Roy Bostock appeared to downplay the potential for a shareholder revolt, saying in a statement late Saturday that he was "pleased that so many of our shareholders joined us in expressing" management's view that Microsoft's offer undervalued the company.
Yahoo co-founder and Chief Executive Jerry Yang was quick to declare the dance with Microsoft was over. "With the distraction of Microsoft's unsolicited proposal now behind us, we will be able to focus all of our energies on executing the most important transition in our history so that we can maximize our potential to the benefit of our shareholders, employees, partners and users, " he said in a statement.
In a letter to Yang made public by Microsoft , Chief Executive Steve Ballmer said he was willing to raise his offer to $33 per share, which would have reflected a 70% premium to the price at which Yahoo's stock closed the day before Microsoft's Feb.1 offer. Ballmer indicated that Yang wouldn't agree to a deal for anything less than $37 per share.
"After careful consideration, we believe the economics demanded by Yahoo do not make sense for us, and it is in the best interests of Microsoft stockholders, employees and other stakeholders to withdraw our proposal," said Ballmer.
Ballmer also said he decided against a hostile takeover attempt because it would have involved a protracted proxy contest, and he concluded that Yang would take steps that would make Yahoo undesirable as an acquisition for Microsoft .
In particular, Ballmer noted that Yahoo's proposal to outsource its search advertising to rival Google Inc. (GOOG) would make Yahoo undesirable to Microsoft because it would create a host of regulatory issues and fundamentally undermine Yahoo's own strategy and long-term viability.
Microsoft said repeatedly that buying Yahoo would be its best opportunity to narrow the gap with Google , which dominates Internet search and the online text advertising market.
In the absence of a Yahoo acquisition, Ballmer said Microsoft has a compelling plan to bolster its business through innovative services and strategic transactions with other business partners. "While Yahoo would have accelerated our strategy, I am confident that we can continue to move forward toward our goals," he said.
For Yahoo's part, Bostock argued that the company is "profitable, growing, and executing well on its strategic plan to capture the large opportunities in the relatively young online advertising market. Our solid results for the first quarter of 2008 and increased full year 2008 operating cash flow outlook reflect the progress the company is making."
-By Scott Morrison ; Dow Jones Newswires; 415-765-6118; scott.morrison@ dowjones.com
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Microsoft has announced it is dropping its bid to acquire one of their Internet competitors, Yahoo!, after a three-month courting effort by Microsoft.
Steve Ballmer
Microsoft chief executive officer, Steve Ballmer notified Yahoo! chief executive officer, chairman and co-founder, Jerry Yang via a letter that Microsoft was dropping their bid for the Sunnyvale, California based search engine giant.

In a press release from Microsoft, Ballmer said, “Despite our best efforts, including raising our bid by roughly US$5 billion, Yahoo! has not moved toward accepting our offer. After careful consideration, we believe the economics demanded by Yahoo! do not make sense for us, and it is in the best interests of Microsoft stockholders, employees and other stakeholders to withdraw our proposal”.

Microsoft withdrew its bid effort after raising their bid from $44.6 billion to $47.5 billion, which works out at $33 per share. However, Yahoo! were waiting for a bid of around $53 billion, which was more than Microsoft were willing to pay.

Microsoft had previously wanted to takeover Yahoo! in-order to compete with Google, the market leader in online advertising.  The online advertising market was worth $40 billion in 2007 and will rise to an expected $80 billion in 2010.

Some observers, however, are speculating that the bid withdrawal could just be another tactic in their attempt to acquire Yahoo!. Yahoo shares have dropped since the bid was pulled out.