Yahoo Refusal May Bring Higher Offer from Microsoft

Yahoo Inc. has rebuffed an unsolicited $44.6 billion takeover offer from Microsoft Corp., an offer Yahoo said "substantially undervalues" the company. Microsoft is now expected to sweeten its bid, which valued Yahoo stock at $31 a share.

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The dealing between Microsoft and Yahoo is still going on with new intensity. Earlier today, Yahoo formally rejected Microsoft's 44.6 billion takeover bid. Yahoo told Microsoft that its $31 per share offer substantially undervalues the company.

Microsoft in turn called Yahoo's rejection of the offer unfortunate. As NPR's Wendy Kaufman reports, the ball is now clearly in Microsoft's court.

WENDY KAUFMAN: No one thought Microsoft's unsolicited bid for Yahoo would be accepted without a fight. And today's response was entirely predictable. So what happens next?

Option one, Microsoft could raise its price. The original offer represented a 62 percent premium over the sheer price at the time. That sounds pretty good, but Microsoft reportedly offered Yahoo a much richer deal, about $40 a share last year. And Mark Maheny of Citigroup says, if Microsoft believes it needs Yahoo, it will have to pay more than its current offer.

Mr. MARK MAHENEY (Director of Internet Equity Research, Citigroup): If they're really serious about succeeding in online advertising and putting down a $45 billion bid for Yahoo has got to be - there's no better evidence that they're serious about this, then I don't think Microsoft can afford to accept a no on the 31 bid. I think they would have to counter with a higher price.

KAUFMAN: Another option for Microsoft is this: While it's not saying anything publicly, Microsoft is considering an end-run around the Yahoo board of directors, taking its case directly to Yahoo shareholders, and getting them to sell Microsoft their shares.

Charlene Lee of Forrester Research explains.

Ms. CHARLENE LEE (Analyst, Forrester Research): And if I can own enough shares on the public market to have a majority of the shares, I can then have majority voting on the board, I can own the board of directors, kick out the current board of directors and put my own executives in place.

KAUFMAN: They would then approve Microsoft's takeover of Yahoo. Microsoft has until mid-March to nominate its own slate of directors. But Charlene Lee says Yahoo has made it very clear that it wants to remain independent or, at the very least, stay out of Microsoft's hands.

Ms. LEE: This is a company who prides itself as one of the foundations of the Internet. The founder is at the helm, he doesn't want to see this going to a company that they don't have a whole lot of respect for. They don't think that Microsoft has very good Internet smarts, and don't really want to be owned by a company like that.

KAUFMAN: Yahoo could also try to blunt Microsoft's effort by exercising and anti-takeover device known as a poison pill. Yahoo would issue more stock, making a buyout too expensive for Microsoft to pull off.

Behind the scenes, there's lots of maneuvering. Google offered to help Yahoo fend off Microsoft's offer with an advertising alliance with Yahoo. Still, another possibility: some kind of deal between Yahoo and AOL's online division. Time Warner may be happy to sell that off.

But all these deals would prompt antitrust scrutiny, and no final resolution is expected anytime soon. Indeed, the battle over what companies will survive in the Internet search and advertising industry is just getting started.

Wendy Kaufman, NPR News, Seattle.

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Yahoo Rejects Microsoft Bid

Yahoo Inc. on Monday rejected a $44.6 billion dollar buyout bid from Microsoft Corp., saying the offer was too low.

Yahoo said in a statement that its board unanimously rejected the bid from Microsoft, despite the fact that Microsoft's $31-a-share offer was a 62 percent premium compared to Yahoo's stock price.

Yahoo officials said the offer "substantially undervalues" its global brand, large worldwide audience, significant

recent investments in advertising platforms and future growth prospects, free cash flow and earnings potential, as well as substantial unconsolidated investments.

The move sets the stage for struggle between Yahoo's board and shareholders, who may be skeptical that company should keep going it alone.

Some investors think Yahoo has stumbled as it failed to keep pace with Google in search and online advertising.

Microsoft now must decide whether to increase its offer, launch a proxy fight or simply withdraw.

Meanwhile, Yahoo is reaching out to other potential partners.

If completed, a merger of Microsoft and Yahoo would be the world's largest of two computer technology companies and would create a formidable rival to Internet search and advertising leader Google Inc.

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