Sunday 04 May 2008
By ReutersSAN FRANCISCO, May 3 (Reuters) - Microsoft Corp walked away
from its bid to buy Yahoo Inc on Saturday after the Internet
company turned down its offer to raise the price by $5 billion
to $47.5 billion.
Microsoft's offer was for $33 a share but Yahoo would not
lower its demand below $37, Microsoft Chief Executive Steve
Ballmer said. The software company initially bid $31 per share
for Yahoo more than three months ago.
"We believe the economics demanded by Yahoo do not make
sense for us, and it is in the best interests of Microsoft
stockholders, employees and other stakeholders to withdraw our
proposal," Ballmer said in a statement.
Analysts say Yahoo has overplayed its hand and they expect
the Web pioneer's shares to fall as much as 30 percent to $20
levels when Nasdaq trading resumes on Monday. The stock rose
nearly 7 percent to $28.67 on Friday on hopes of an agreement
between Microsoft and Yahoo.
"Wow. I'm shocked Yahoo wasn't more reasonable. The stock
will probably go down at least $5 on Monday. It is surprising
that Ballmer walked away instead of trying a hostile bid at
$33," said Walter Price, a senior portfolio manager at RCM fund
management company in San Francisco, which had 21 million
Microsoft shares and 2 million Yahoo shares as of the end of
December.
Laura Martin, a senior analyst at Soleil Securities, said
she expected a number of shareholder lawsuits against Yahoo.
"The Yahoo guys want too much money for their company. We
think $33 a share is fair in the context of the weakening
economic environment and adverse advertising trends," she said.
"They've prioritized employees over shareholders in the hopes
that someday they can create more than $8 billion of value,
even if they have no track record of doing so," she said.
Some Wall Street analysts also have said Microsoft could
pull its bid as a negotiating strategy aimed at putting
pressure on Yahoo to eventually accept a future offer.
GOOGLE DEAL NEXT WEEK?
Yahoo Chairman Roy Bostock said in a statement the company
believed from the beginning that Microsoft's offer undervalued
it, and the board was "pleased that so many of our shareholders
joined us in expressing that view."
He said Yahoo was pursuing "strategic opportunities" but
gave no details.
Yahoo has courted possible deals with Time Warner Inc's
AOL Internet division or News Corp's MySpace online social
network, and tested a search advertising partnership with
Google Inc. A partnership with Google may be announced as early
as next week, a person with knowledge of discussions told
Reuters.
"With the distraction of Microsoft's unsolicited proposal
now behind us, we will be able to focus all of our energies on
executing the most important transition in our history so that
we can maximize our potential to the benefit of our
shareholders, employees, partners and users," Yahoo co-founder
and Chief Executive Jerry Yang said in a statement.
Jordan Rohan, founder of digital media advisory firm
Clearmeadow Partners, said Yahoo could name Time Warner as a
partner or buy AOL to put a positive spin on the situation, but
neither option would give as good a payoff to shareholders.
"Yahoo management and board overplayed its hand.
Shareholders were cheated out of a victory," Rohan said. "I
think Yahoo forgot what it felt like to have a share price
under $20. They may be reminded soon."
Ballmer cited Yahoo's Google plans as one reason Microsoft
was walking away rather than mounting a hostile offer.
"We regard with particular concern your apparent planning
to respond to a 'hostile' bid by pursuing a new arrangement
that would involve or lead to the outsourcing to Google of key
paid Internet search terms offered by Yahoo today," Ballmer
said in a letter to Yang, made public on Saturday. "In our
view, such an arrangement with the dominant search provider
would make an acquisition of Yahoo undesirable to us."
REALLY WALKING?
Microsoft wants to buy Yahoo to gain a stronger foothold in
its battle with Google, which is expanding rapidly into the
software maker's own turf with new Web-based applications.
Technology analysts say Microsoft may not really walk away
from Yahoo, and Saturday's move could parallel Oracle Corp's
strategy in winning over BEA Systems Inc. Oracle pulled its
offer in October 2007, leading BEA shares to fall 6 percent.
Despite the tough talk, the companies reached an agreement in
January this year.
Although Microsoft has not succeeded in sealing a deal,
tough talk by Ballmer has already brought Yahoo to the
negotiating table.
According to a person familiar with Microsoft's thinking,
Yahoo's advisers said initially it would not negotiate with
Microsoft for anything less than $40 a share. But amid threats
by Microsoft to launch a hostile takeover, Yang suggested a
price of $38 a share, the person said.
On Saturday, Yang and Yahoo co-founder David Filo met
Ballmer and Microsoft's Platforms & Services Division President
Kevin Johnson in Seattle, where they communicated that Yahoo's
board was willing to cut a deal at $37 a share, although the
two co-founders remained committed to a dollar more per share,
the source said.
Price was not the only stumbling block, another person
familiar with the discussions said. Microsoft had also failed
to respond adequately to antitrust regulatory concerns that
Yahoo raised at several meetings, said the source who was not
authorized to speak on the record.
Yahoo also wanted "value-certainty" assurances the value of
Microsoft's offer would remain the same when the deal, if it
did get done, closed, the person said.
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