Yahoo rejects Microsoft offer, says it undervalues company

Microsoft may have to up ante or pursue hostile takeover

Confirming weekend reports, Yahoo Inc. today rejected Microsoft Corp.'s $44.6 billion cash-and-stock offer, saying the unsolicited proposal substantially undervalues the company.

In a statement, Yahoo said that its management team, along with financial and legal advisers, believe the offer doesn't reflect cash flow, earnings potential or recent investments in its advertising platform.

Further, Yahoo said its board would continue to evaluate other "strategic options."

"We remain committed to pursuing initiatives that maximize value for all stockholders," the statement said.

Microsoft offered $31 per share on Feb. 1, which was a 62% premium over Yahoo's closing price the day before. Since then, Yahoo's stock has risen in value and was trading just above $29 this morning.

Yahoo's executives were rumored to have been searching for a buyer other than Microsoft. However, no buyer has emerged. Yahoo's latest moves mean that Microsoft may have to make a more generous offer or pursue a hostile takeover.

Microsoft said it believes the acquisition of Yahoo would give it the engineering talent and resources to compete better with Google Inc.. While Microsoft and Yahoo have had some success with display advertising, Google has built a fortune on contextual text ads that appear during a search.

Copyright © 2008 IDG Communications, Inc.

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