Microsoft not Backing Down from Yahoo Takeover Bid

Yahoo Inc. rejecting Microsoft Corp’s $44.6 billion was not the end of the Yahoo-Microsoft story, as was expected. Microsoft has now sent indicators that it is not done with the takeover attempt yet.

Calling Yahoo’s rejection of its unsolicited bid ‘unfortunate’, Microsoft said together, Yahoo and Microsoft would have meant a better value proposition for the companies’ shareholders, and would have also enabled them to compete together in the online services market.

The statement from Microsoft comes after Yahoo had rejected its takeover offer earlier during the day. Yahoo’s reasoning behind turning down the offer was that it did not hold out the best deal for the company’s shareholders. While turning down Microsoft’s offer, Yahoo had said it was also examining other possibilities.

Yahoo had earlier issued a statement that said, “The board believes that Microsoft's proposal substantially undervalues Yahoo, including our global brand, large worldwide audience, significant recent investments in advertising platforms and future growth prospects, free cash flow and earnings potential, as well as our substantial unconsolidated investments.”

Yahoo’s statement is, however, not watertight, as it leaves behind room for Microsoft to return with a better deal, besides also opening up possibilities for other prospective bidders as well. The company’s board said it was looking at any option that would provide maximum benefit to the company’s shareholders. The rejection was along expected lines and did not come as a surprise.

Microsoft’s offer of $31 a share in cash and stock was a 62% premium from the price at which Yahoo shares had closed a day earlier. The offer had come within a week of Yahoo announcing its decision to cut down its workforce by 1,000 people by mid-February.

Yahoo CEO Jerry Yang had said that move was influenced by ‘headwinds’ that the company had come up against. Yahoo had earlier announced reduced earnings for the fourth quarter, though they were still able to beat Wall Street expectations. However, its forecast for 2008 was disappointing, according to analysts.

However, despite the slightly negative tinge, Yahoo continues to be the leader when it comes to advertising revenue garnered from online displays. Internet tracking service ComScore says the different Yahoo websites are the most visited by users in the U.S., and the company ranks No. 3 at a global level.

According to analysts, a combined Yahoo-Microsoft entity would make for a strong No. 2 player in the business, though it would still have only about half the share of the search advertising market that Google currently has.

Some of the company’s investors believe the rejection is the first step in a move by Yahoo to get a higher price for the shareholders from any prospective bidder. However, there is a possibility of Microsoft approaching Yahoo shareholders directly with its offer, a move that would make the takeover attempt a hostile one.

This is not the first time Yahoo has resisted a takeover attempt by Microsoft. The two companies were involved in talks towards the end of 2006 and the beginning of 2007, at which time Yahoo had resisted the takeover bid on the grounds that the time was not right.