Yahoo wants Microsoft to raise offer

Says Microsoft's threat of proxy fight is counterproductive

Yahoo Inc.'s board of directors told Microsoft Corp. that it would consider the software company's unsolicited takeover bid, but only if it makes a big higher than the initial $44.6 billion offer.

In a letter today, Yahoo also told Microsoft CEO Steve Ballmer that it didn't take kindly to ultimatums or threats of a hostile takeover.

Microsoft declined to comment on Yahoo's letter.

"Our board carefully considered your unsolicited proposal, unanimously concluded that it was not in the best interests of Yahoo and our stockholders, and Yahoo rejected it publicly on February 11, 2008," Yahoo said in its letter. Yahoo was responding to a letter Ballmer sent to Yahoo on Saturday.

In that letter, Ballmer gave Yahoo three weeks to agree to its takeover bid, which now stands at about $42 billion, or face a proxy fight and possibly a lower offer. The offer is now lower because of a decline in Microsoft's share price.

Yahoo told Microsoft that the threat to launch a hostile takeover was "counterproductive and inconsistent with your stated objective of a friendly transaction."

"We are confident that our stockholders understand that our independent board is best positioned to objectively and knowledgeably evaluate our company's alternatives and to maximize value," Yahoo said.

However, Yahoo said it was not opposed to a Microsoft takeover if it was in the best interests of its stockholders, suggesting that Yahoo wants Microsoft to increase its offer.

"Our board's view of your proposal has not changed," Yahoo said. "We continue to believe that your proposal is not in the best interests of Yahoo and our stockholders ...[W]e are steadfast in our commitment to choosing a path that maximizes stockholder value and we will not allow you or anyone else to acquire the company for anything less than its full value."

Rob Enderle, an analyst at San Jose-based Enderle Group, said companies in Yahoo's position aren't paying attention to the fact that the stock market is in decline, and they want more money than the market or a buyer is willing to pay.

Enderle said the reason there appears to be so much animosity is that Microsoft feels it is offering more than what the market says the company is worth, while Yahoo feels that Microsoft is offering less than what Yahoo believes the company is worth.

"So you have a separation between the two," he said. "Microsoft feels hurt that Yahoo isn't jumping at the chance to sell the company at a premium over market, and Yahoo's upset because it looks like Microsoft is trying to rip them off by buying the company for less."

Enderle said the interaction between the two companies is getting personal and when it gets personal it gets expensive.

"Both these guys need to step back for a minute and take a breath because the next steps start to get very expensive for both entities," he said. "If Microsoft decides to do a hostile, the cost of doing a hostile goes up quite a bit, and the damage to Yahoo even if the attempt fails is going to be significant. So at this point allowing this to become hostile is not in either firm's best interest."

Copyright © 2008 IDG Communications, Inc.

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