Yahoo!’s rejection on Monday of Microsoft’s buyout offer sets the stage for the United States software giant to up the ante or attempt a coup by ousting the internet firm’s board of directors.
Yahoo!’s board of directors spurned Microsoft’s takeover bid, saying the $44,6-billion offer is too low and not what is best for shareholders of the veteran internet company.
Yahoo! said it had decided “after careful evaluation” that Microsoft’s bid “substantially undervalues Yahoo!”. As a result, the board “concluded that the proposal is not in the best interests of Yahoo! and our stockholders”, it said.
Microsoft called the board’s action “unfortunate” and urged Yahoo! to reconsider its blockbuster bid to combine the two tech titans, adding that it offers “superior value” to Yahoo! shareholders.
“As we have said previously, Microsoft reserves the right to pursue all necessary steps to ensure that Yahoo!’s shareholders are provided with the opportunity to realise the value inherent in our proposal,” Microsoft said.
Board members
Microsoft, which called its bid “full and fair”, could switch from wooing Yahoo!’s leaders to declaring war on them by making allies of shareholders in order to oust board members at annual elections mid-year.
Yahoo!’s 10 board members are up for re-election. The deadline for board-member candidate nominations is in March.
A small group of Yahoo! shareholders last week filed a civil suit against the California company in a state court for not accepting a bid Microsoft made for the company early last year, when the stock price was higher.
“Based on conversations with stakeholders of both companies, we are confident that moving forward promptly to consummate a transaction is in the best interests of all parties,” Microsoft said in its release. “The Yahoo! response does not change our belief in the strategic and financial merits of our proposal.”
Yahoo! has rules in place that prevent Microsoft from being able to buy more than a 15% stake in the company directly from shareholders, so a board-circumventing “tender offer” is not feasible.
Reports indicate Yahoo! wants at least $40 per share and that Microsoft considers $35 a top bid.
On February 1, Microsoft unveiled what it called “a generous” offer to take over Yahoo!, in an effort to merge the world’s biggest software company with a major internet player to take on search and advertising juggernaut Google.
Microsoft proposed $31 per share, a 62% premium above Yahoo!’s closing price a day earlier. Yahoo!’s share price climbed in the wake of the offer, and closed up more than 2% at $29,87 on Monday before Microsoft reiterated its offer.
Microsoft’s stock price has slipped since the offer was made, and dropped just more than 1% to $28,21 on Monday after news spread that the company might have to spend more to buy Yahoo!.
Holding out
Some analysts said the wording of the statement by Yahoo! suggests that the company is holding out for a better price, and guarding against potential lawsuits from stockholders.
“Right now they are haggling,” Silicon Valley analyst Rob Enderle said. “Yahoo! is not saying no at any price. They are saying the Microsoft offer is not strong enough.”
It is common for companies to rebuff initial buyout offers and hold out for sweeter deals.
Analysts at RBC Capital Markets said the rejection of the Microsoft bid signals that there is no sign of interest from competing bidders and that negotiations have entered a “counter-offer stage”
Microsoft says it is prepared to tap into financial markets and leverage a buyout for the first time since it was founded in 1975.
Yahoo! chief executive Jerry Yang sent a message to employees last week, assuring them the firm’s leaders were exploring ways to avoid a Microsoft takeover.
Google, meanwhile, has condemned Microsoft’s effort as an attack on “the underlying principles of the internet: openness and innovation”.
Analysts say the goal of the takeover is to compete better with Google, whose dominance of internet advertising, backed by its powerful search-engine technology, has come at the expense of Microsoft and Yahoo!.
Reports surfaced on Monday that options being considered by Yahoo! include merging with faded internet star America Online (AOL), now owned by Time Warner. — AFP