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Yahoo's rejection is sure to hurt for Microsoft Chief Executive Steve Ballmer, who had previously expressed great enthusiasm for the potential deal.
Microsoft loses bid for Yahoo and must choose between a fully hostile bid, a higher offer, or waiting for Yahoo to fall further on hard times

The Microsoft-Yahoo saga, which played out over the last couple weeks, began with Microsoft making an unsolicited offer for internet giant Yahoo.  The plot thickened with the resignation of Chairman Terry Semel from Yahoo's board, and a Google threat of legal action to block the move.  While many analysts considered the deal a shoe-in, initial analysis of Yahoo's willingness to accept the deal in the first place was apparently off the mark.

Inside sources had warned that CEO Jerry Yang, who held considerable sway over the final decision had been very wary of Yahoo getting digested into the Microsoft empire.  These sources had called such a development "Jerry's worst nightmare."  Perhaps they should have been heeded sooner.

In a move which had been forecast since late last week, Yahoo's board on Monday formally rejected Microsoft's $45B bid.  The rejection made it clear that the board felt that anything less than double its stock price would be too little.  Yahoo would accept an offer of $40 per share or higher, significantly more than Microsoft's offer, which equated to about $31 per share.

The statement from Yahoo's board, attacked Microsoft's offer as cheap, stating, "The board believes that Microsoft's proposal substantially undervalues Yahoo, including our global brand, large worldwide audience, significant recent investments in advertising platforms and future growth prospects, free cash flow and earnings potential, as well as our substantial unconsolidated investments."

This contrasts Microsoft Chief Executive Steve Ballmer's valuation of the Yahoo, in which he called his company's bid "generous."

The board made it clear that its ears would be open to a higher bid from Microsoft or other investors, stating that Yahoo "is continually evaluating all of its strategic options in the context of the rapidly evolving industry environment."

Yahoo struggles are evidenced by significant layoffs and a 2008 forecast that many in the investment community considered disappointing.  Some see Yahoo's move and simply a gutsy attempt to try to get Microsoft to up its offer.  One thing that may stand in the way of this, though, is lack of competitive interest.  After Google's criticism, it is unlikely that Google would field a bid, and it might not be able to even do so, due to possible violations of antitrust laws stemming from a Yahoo-Google merger.  Fox owner Rupert Murdoch, known for buying up properties, has also stated that he has no interest in Yahoo.

As no one else has showed much interest in struggling Yahoo, Microsoft may feel little need to rush, and may alternatively choose to sit back and wait like a vulture circling a tired beast, ready to strike when Yahoo's circumstances make it more willing to deal.

Another possibility that remains is that Microsoft could make a fully hostile bid and bring its offer directly to Yahoo's shareholders, attempting to outmaneuver the board.  Such a move might work, but would risk seriously damaging its future prospects, if it was rebuffed.

Yahoo rejected a Microsoft bid in 2006 and 2007 in private talks, but this offer was Microsoft's first public bid; and also its first public rejection.  Microsoft refused to comment, so its next move is anyone's guess.  Microsoft, though, had previously made it clear that it considered the move an essential step for both companies, stating, "Today, the market is increasingly dominated by one player who is consolidating its dominance through acquisition.  Together, Microsoft and Yahoo! can offer a credible alternative for consumers, advertisers and publishers."

With the prospect of such an alliance evaporating almost as quickly as it was born, the news is surely a disappointment to Microsoft's leadership.

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Much Ado About Nothing
By TomZ on 2/11/2008 11:54:12 AM , Rating: 2
At the end of the day, Yahoo just wants more money for its shareholders. Surely nobody expected Microsoft to tender its best/highest offer first. There will simply be some negiotiation about the price, that's all.

RE: Much Ado About Nothing
By TerranMagistrate on 2/11/2008 12:14:42 PM , Rating: 2
Or there won't be any deal at all. Also, the fact that Microsoft was said to be considering going into a bit of debt on this $45 billion venture means that even their pockets are bottomless. Yahoo! wants significantly more.

RE: Much Ado About Nothing
By Master Kenobi on 2/11/2008 12:24:06 PM , Rating: 5
They are unlikely to get it. With Yahoo sliding fast, all Microsoft needs to do is stick the offer on the table and tell Yahoo to call them when they are ready to admit defeat. Given how fast Yahoo's stock is dropping that isn't going to take too long.

RE: Much Ado About Nothing
By omnicronx on 2/11/2008 1:09:51 PM , Rating: 3
OR they go behind the boards back, and pursue a hostile takeover. Microsoft's offer was pretty good, I really wonder how close the vote to reject really was.

RE: Much Ado About Nothing
By Master Kenobi on 2/11/2008 1:55:29 PM , Rating: 2
Yes, I remember early reports stating that Microsoft is over-valuing Yahoo at $31/share. Guess Yahoo's board thinks they are worth far more than they really are.

RE: Much Ado About Nothing
By Oregonian2 on 2/11/2008 2:28:10 PM , Rating: 2
I always thought it interesting when a company says that an offer, which is over the stock's market price, is too low.

If I were Microsoft I'd just sit aside and wait until Yahoo's stock tanks even more. Only problem is that Yahoo's value to them goes down in time along with the stock's price.

RE: Much Ado About Nothing
By Behlal on 2/11/2008 5:08:31 PM , Rating: 1
I don't know. It seems strange to me that you think offering the stock price would be good value. Effectively, the stock price is the average of what people on any given day are willing to pay for the stock that is available. It is really only an estimate at best, because it only looks at active sales. If I own stock worth $30/share, it doesn't mean I'm willing to sell the stock for that price.

Another aspect to look at is potential value. Let's say the stock is sitting at $30, but analysts have suggested that it could grow to $50 within 18 months. Would you then accept $30 for something you believe is worth $50 in a short period of time?

RE: Much Ado About Nothing
By TomZ on 2/11/08, Rating: 0
RE: Much Ado About Nothing
By mindless1 on 2/11/2008 10:05:51 PM , Rating: 2
Internet services will inevitably grow in the future, it's not as though there are only 4 aces in a deck and Google wins for having them all. Yahoo's future has everything to do with whether they can accurately project the public's needs online and advertise their services effectively. If they feel the bid from MS was too low, they must have a reason to believe it. They'd certainly have a better understanding of their business than we do, as they're not jonny come lately.

RE: Much Ado About Nothing
By CupCak3 on 2/11/2008 12:20:34 PM , Rating: 5
"Yahoo just wants more money for its shareholders"

... if by "Yahoo" you mean "the board members" and by "shareholders" you mean "themselves...

RE: Much Ado About Nothing
By Pandamonium on 2/11/2008 12:37:31 PM , Rating: 2
That's ridiculous. Yahoo's share prices reflect the company's current position in the market as well as it's future prospects. The whole point of an open market is so that prices reflect everything.

RE: Much Ado About Nothing
By rcc on 2/11/2008 1:48:40 PM , Rating: 3
However, there is a lot of perception mixed in there. Hence the "over" and "under" valued stocks. There is no set absolue formula that says this company is worth x.

RE: Much Ado About Nothing
By Oregonian2 on 2/11/2008 2:29:10 PM , Rating: 2
Market price is that, pretty much by definition, isn't it?

RE: Much Ado About Nothing
By Ringold on 2/11/2008 3:35:23 PM , Rating: 2
In the never-never-land of theory, you're right. In reality, rcc has it right.

All hail the animal spirits!

RE: Much Ado About Nothing
By TomZ on 2/11/2008 3:42:14 PM , Rating: 1
To that, I would add that the stock price is based on the average perceived value of the company amongst investors, which could differ from the actual value for any one of a number of reasons. And in reality, people trading a company's stock rarely (if ever) have a complete picture about the company in the present, let alone the future.

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