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Yahoo Expected to Reject Microsoft's TOB
Any decision by Yahoo's board could face pressure from investors who want to accept the Microsoft bid so that a deal is made quickly. (Kimberly White/Reuters)

Yahoo's board plans to reject Microsoft's $44.6 billion hostile bid in a letter on Feb. 11, saying the offer undervalues Yahoo, people involved in the discussions said.

Microsoft, which hopes Yahoo will help it compete more effectively against Google, is likely to continue its pursuit.

The decision to reject the offer was made after a board meeting on Feb.8 in which directors discussed ways the company might respond to Microsoft's week-old bid. The board heard presentations from Yahoo's management and its bankers, who made the case that the company was worth more than the $31 a share Microsoft offered, people familiar with the discussions said Saturday.

In response, Microsoft is likely to mount a behind-the-scenes campaign directed at Yahoo's largest shareholders, hoping they will put pressure on Yahoo's board, people familiar with Microsoft's plans said. Hedge funds have bought up much of Yahoo's stock since Microsoft made its bid, and they typically favor a quick sale as opposed to holding shares for the long term.

Microsoft could also decide to make an offer directly to shareholders, called a tender offer, which would put even more pressure on Yahoo's board to negotiate. Microsoft could also set a deadline for its offer.
Microsoft has already intimated that it could seek to oust Yahoo's board at its next election; it would have until March 13 to nominate a new slate of directors. Unlike other corporations, Yahoo has no protections to prevent an overthrow of its board.

Microsoft could also raise its offer to Yahoo's board. It had planned to bid as much as $35 a share before Yahoo's shares dropped to a three-year low last week, when it reported disappointing earnings.

Yahoo and Microsoft declined to comment Saturday. Yahoo said earlier in the week that its board was evaluating Microsoft's offer and other options. The board's decision to reject the bid was first reported on the Web site of The Wall Street Journal on Saturday.

Some analysts said Yahoo's rejection might simply be an attempt to get Microsoft to raise its bid.

At the Friday meeting, the Yahoo board also discussed options for maintaining the company's independence, including an advertising partnership with Google that could improve Yahoo's financial strength, people familiar with the discussions said.

Legal analysts said the board's deliberations were complicated by the fact that both of its most talked-about options could face antitrust objections. Google has already raised potential antitrust issues about a Microsoft-Yahoo tie-up. A Google-Yahoo partnership in search advertising could have "even bigger antitrust implications," said Carl Tobias, a law professor at the University of Richmond in Virginia.

"It is a bit of a game and a gamble," Tobias said. "Certainly a possibility is that the Google deal is being put forward to press Microsoft into offering more per share."

No other offers to acquire Yahoo have surfaced, according to people familiar with the situation.

"They don't have a whole lot of choices and a lot of defenses," said Scott Dettmer, a veteran adviser to technology companies in Silicon Valley and a founding partner of the law firm Gunderson Dettmer Stough Villeneuve Franklin & Hachigian.

Some analysts also noted that Microsoft's initial offer, a mix of cash and stock, had already dropped in value as its shares have declined. It is worth about $29 a share based on its close Friday. (International Herald Tribune)






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