Yahoo takes new defensive tack against Microsoft's buyout bid

Allows more time to nominate board members in effort to head off possible proxy fight

Yahoo Inc. has lifted a March 14 deadline for nominating directors to its board in a move aimed at discouraging Microsoft Corp. from launching a proxy fight to replace the current board with one willing to approve the software vendor's bid to acquireYahoo.

The decision to extend the nomination deadline, which was announced today, is the latest maneuver by Yahoo as the online services company tries to buy itself more time to seek alternatives to Microsoft's unsolicited cash-and-stock offer.

Under the original deadline, Microsoft would have had to nominate a slate of candidates for the Yahoo board by the end of next week. Now Microsoft has more time to ponder whether it wants to proceed with a proxy fight, and Yahoo hopes that it will get more time to seek out alternatives to the acquisition bid.

"In light of the current circumstances, this change removes an imminent deadline," Yahoo CEO Jerry Yang and Chairman Roy Bostock wrote in a joint e-mail to the company's employees. "Microsoft, of course, could still choose to name directors, but our objective here is to enable our board to continue to explore all of its strategic alternatives for maximizing value for stockholders without the distraction of a proxy contest."

In the e-mail, which was filed with the U.S. Securities and Exchange Commission, Yang and Bostock also said without elaboration that Yahoo's board and senior management team are making progress in "clarifying the many options available to us."

To extend the nomination deadline, Yahoo amended its bylaws so they now state that potential directors can be nominated up to 10 days after the company publicly announces the date of this year's annual meeting of stockholders. A meeting date has yet to be set, Yahoo said in today's press release. It added that the bylaw amendment "does not preclude any party from nominating one or more directors at any time prior to the new deadline."

Also today, The New York Times and The Wall Street Journal both reported that Yahoo has stepped up negotiations with Time Warner Inc. over a possible tie-up with the latter company's AOL LLC subsidiary. The two newspapers both cited anonymous sources in their reports.

In addition, there have been reports in various media outlets since Microsoft launched its buyout bid on Feb. 1 that Yang has talked to executives at Google Inc., The Walt Disney Co. and News Corp. to explore possible alternative deals.

Microsoft is offering to pay $31 per share in cash for half of Yahoo's outstanding shares, for a total of $22.3 billion. It then would exchange stock for rest of the shares. When the offer was made, Yahoo's share price was $19.18, while Microsoft's was $32.60 — giving the proposed deal an overall value of $44.6 billion at the time.

Yahoo's board rejected the offer, saying in a letter to Microsoft that the proposed purchase price "substantially" undervalued the company. Since then, the value of the offer has fallen to about $41 billion as a result of a drop in the price of Microsoft's stock. In midmorning trading on Wednesday, both Microsoft's and Yahoo's shares were selling for between $28 and $29.

After Yahoo turned down Microsoft's offer, the software vendor indicated that it would be willing to pursue any options to complete the acquisition, leaving the door open to a hostile takeover through a proxy fight.

Microsoft declined today to comment about either Yahoo's extension of the board nomination deadline or the possibility that it will wage a proxy fight for control of the Yahoo board.

But in a keynote speech at Microsoft's Mix08 Web development conference in Las Vegas, Ray Ozzie, the company's chief software architect, detailed why Microsoft is so interested in buying Yahoo. Microsoft expects to primarily recoup its investment in Web-based services and content via advertising, Ozzie said, adding that the software vendor wants to use "Yahoo and its creative people and properties" to help ensure that it offers "a vibrant advertising ecosystem."

Copyright © 2008 IDG Communications, Inc.

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