Yahoo Wants a Better Deal from Microsoft

Says It Is Open to Acquisition at the Right Price

Two months after software giant Microsoft offered to buy it for $44.6 billion, Internet-search provider Yahoo is still looking for a better offer.

After Microsoft CEO Steve Ballmer sent a letter to Yahoo’s board Saturday declaring that there has been “no meaningful negotiation to conclude an agreement” between the two companies and suggesting that Microsoft will take its bid hostile by initiating a proxy battle to replace Yahoo’s board if a deal is not reached by April 26, Yahoo CEO and founder Jerry Yang and chairman Roy Bostock formally responded with a request for a higher price.

Yahoo officially rejected Microsoft’s bid Feb. 11. But in a letter to Ballmer issued Monday, Yang and Bostock said they are open to a deal, but not at the $31 per share offered by Microsoft, which represented a 62% premium over the company's closing price of $19.18 Jan 31. Yahoo shares have been rising since the Microsoft bid was first announced, closing at $28.36 apiece Friday.

“We have continued to make clear that we are not opposed to a transaction with Microsoft if it is in the best interests of our stockholders,” Yang and Bostock wrote. “Our position is simply that any transaction must be at a value that fully reflects the value of Yahoo, including any strategic benefits to Microsoft, and on terms that provide certainty to our stockholders.”

The letter stated that Yahoo presented a three-year financial and strategic plan to its shareholders that supported the board’s position that the Microsoft bid is too low, and it noted that the company has continued to launch new products, including a new online-advertising-management system called AMP! that is being unveiled Monday.

The letter also accused Ballmer of mischaracterizing the state of discussions between Microsoft and Yahoo over a possible deal and described Ballmer’s threat of a proxy battle as being “counterproductive and inconsistent with your stated objective of a friendly transaction.”

“We are open to all alternatives that maximize stockholder value,” the letter concluded. “To be clear, this includes a transaction with Microsoft if it represents a price that fully recognizes the value of Yahoo on a stand-alone basis and to Microsoft, is superior to our other alternatives and provides certainty of value and certainty of closing. Lastly, we are steadfast in our commitment to choosing a path that maximizes stockholder value and we will not allow you or anyone else to acquire the company for anything less than its full value.”

Microsoft’s response will be interesting to watch. In his letter to Yahoo Saturday, Ballmer suggested that Yahoo’s share of the search market has continued to decline over the past two months and said Yahoo adopted new plans that will make a takeover more costly to Microsoft. He hinted that a lower, not higher, offer could be forthcoming.

“The substantial premium reflected in our initial proposal anticipated a friendly transaction with you,” Ballmer said in his letter. “If we are forced to take an offer directly to your shareholders, that action will have an undesirable impact on the value of your company from our perspective, which will be reflected in the terms of our proposal.”