Microsoft vowed yesterday to pursue Yahoo! after the internet search engine
formally rejected a $41 billion (£21 billion) approach by the software giant.
Microsoft said that it reserved the right to “pursue all necessary steps” to
ensure that Yahoo! shareholders have a chance to gain from Microsoft’s interest,
hinting that it may seek to oust the Yahoo! board by launching a proxy fight
using its Yahoo! shares.
Microsoft did not say whether it would raise its bid.
Microsoft’s insistence that it is to chase Yahoo! came as it emerged that Google
has become reluctant to act as a white knight for Yahoo!.
Google, the world’s biggest internet company, has gone cold on the idea of
helping its online search rival to reject Microsoft’s advances, The Times has
Eric Schmidt, the chairman of Google, had called Jerry Yang, cofounder of
Yahoo!, offering support as soon as Microsoft’s approach to its smaller rival
was made public.
However, it is understood that Google has studied regulatory implications of a
cooperation deal with Yahoo! and is reluctant to attract unnecessary attention
from anticartel groups, particularly as it has been so vocal against Microsoft’s
dominance elsewhere in the software market.
Google and Microsoft clashed after the internet group sought to buy DoubleClick,
a deal that Microsoft has lobbied against at the European Commission, which has
yet to approve the deal.
As part of Yahoo!’s statement of rejection yesterday, it promised to “evaluate
all of its strategic options”.
However, some of those options are understood to be falling away. AOL – the
internet unit of Time Warner – is thought to be less keen to restart old merger
talks than is Yahoo!.
It is thought that Yahoo! is considering tieups with other media groups, such
Yesterday, Wall Street traders indicated they expected Yahoo! to fall to a
Microsoft offer as shares in the search engine closed at $29.87 in New York, up
67 cents and just shy of the $31 proposed by Microsoft.
On February 1, Microsoft made public its approach to Yahoo!, proposing to offer
$31 per Yahoo! share, with up to half the sum payable in cash and the rest in
Yahoo! hired Goldman Sachs and Lehman Brothers, the Wall Street investment
banks, to aid its defence against the approach.
Yahoo! has suffered eight consecutive quarters of falling profits and a
declining share of the internet advertising market, estimated to be worth about
$40 billion a year and expected to double within two years.
Yesterday, Yahoo! said that it had “carefully reviewed Microsoft’s unsolicited
proposal ... and has unanimously concluded that the proposal is not in the best
interests of Yahoo! and our stockholders”.
Yahoo! said it was rejecting the offer, which had valued its shares at a 62 per
cent premium to their closing price the day before the offer was made public,
because it “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”.
Jordan Rohan, an RBC Capital Markets analyst, said that Yahoo!’s board would
have little choice but to sell the company if Microsoft raised its bid to $35 or
$36 a share.
Future is bright
What Jerry Yang told his “Yahoos” yesterday about why he had turned down
Microsofts $31ashare offer
— Yahoo! is one of the most admired brands in the world
— Substantial operating cashflow, which we expect to grow in the double digits
in 2009, gives us financial flexibility
— Important investments in our core computing infrastructure that provide
— A goal to grow visits to Yahoo! by 15 per cent per year over the next several
— Creating a valuable, unique network of premium sites to serve our advertisers
— Unconsolidated investments in China and Japan
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