Yahoo plans to rebuff Microsoft's $44.6 billion bid

Internet media company Yahoo! Inc. that spent years trying and failing to catch up with Google in Web search and the lucrative market for ads linked to search results, has planned to reject Microsoft's $44.6 billion takeover offer, a source familiar with the issue said Saturday.

Yahoo's board, which spent a week reviewing Microsoft's offer, plans to reject the largest software company’s $31-per-share unsolicited offer, saying the offer "massively undervalues" Yahoo!, and doesn't properly account for the risk that a deal could be blocked by regulators.

The world’s lading software company Microsoft, which dominates the global computer market with its ubiquitous Windows software, announced February 1 its bid to buy search engine Yahoo! for $44.6 billion that represented a 62% premium over Yahoo stock price one day earlier.

The software maker is struggling hard to meet Mountain View, California-based Google’s challenge, and take a monster slice of the online services market. With the acquisition of Yahoo!, Microsoft had intended give a significant challenge to its arch-rival Google in online-search competition.

Calling the Redmond giant’s proposed offer too low, Yahoo!'s board plans to notify Microsoft about their opposition to the hostile bid, the source said. Yahoo! would be unlikely to consider any offer of less than $40 a share, the report also said.

According to the source, Yahoo! is unlikely to consider any offer below $40 per share. Alternatively, The Redmond, Washington-based Microsoft can sweeten their bid. Some analysts believe Microsoft is ready to offer as much as $35 per share for Yahoo, while others say it is unlikely that any other options will emerge and Microsoft may make a higher offer to acquire the second largest search engine.

“A lot of this is gamesmanship on the part of Yahoo,'' said Scott Kessler, an equity analyst at Standard & Poor's in New York who recommends holding Yahoo and buying Microsoft. “Microsoft is well aware that Yahoo doesn't have any other options. What this is about is how much Microsoft wants Yahoo and how much time they're willing to wait to get this deal done.”

Yahoo! shares gained 16 cents Friday to close at $29.20 in NASDAQ Stock Market trading and Microsoft shares closed the session up 44 cents at $28.56.