By Stock Charts | February 11, 2008
The proposed deal, which would be Microsoft’s largest-ever purchase, came after Yahoo’s share price had dropped steadily since October and in the same week the company announced a disappointing 2008 outlook. So far, Microsoft executives have followed a carefully crafted script to woo Yahoo’s board and management, and particularly Jerry Yang, the company’s co-founder and chief executive officer.
Mr. Yang’s support could be critical to completing any deal and in smoothing the integration of the two companies. He has previously rejected Microsoft’s overtures, preferring that Yahoo remain independent.
After a week of consideration, Yahoo has officially rejected the bid:
Yahoo directors concluded after a meeting Friday that the unsolicited offer — worth nearly $45 billion when it was announced on Jan. 31 — “massively undervalues” Yahoo, according to a person familiar with the situation. The board plans to send a letter to Microsoft today, spelling out its position.
While a Microsoft/Yahoo alliance could have some advantages, it comes off as a desperate attempt by Microsoft to catch up with Google’s ever increasing market share in online advertising. With this rejection, Microsoft has a few options.
1. Bid higher
2. Solicit the shareholders
3. Hostile takeover
Of the three, option 2 seems the most likely to succeed. A buyout of Yahoo would result in a lot of turmoil and eventual layoffs in the Yahoo office, as well as a culture clash. A hostile takeover would probably cause much of Yahoo’s top talent to jump ship, possibly to Google. Yahoo’s shareholders have been hit hard as the overall market weakness combined with Yahoo’s lackluster performance has caused the stock price to drop from highs in the mid 30′s. This should be an interesting situation to watch; a buyout would definitely benefit Yahoo’s shareholders in the short term.
Keep your eye on Yahoo’s stock price; movement upwards could signal investor confidence in Yahoo; a downward movement after this rejection could give Microsoft more leverage.
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