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Yahoo Buys Some Breathing Room

NEW YORK -- Yahoo (NASDAQ:YHOO) extended its deadline to nominate board directors, gaining time to seek alternatives or negotiate friendlier terms to a $41.7 billion buyout offer from Microsoft (NASDAQ:MSFT).

The original March 14 deadline could have catapulted Microsoft and Yahoo into a proxy contest next week. Instead, Yahoo said today that the deadline would fall 10 days after it announces the date for its annual shareholder meeting, which has yet to be scheduled.

Yahoo has explored tie-ups with several other Internet and media companies that would allow it to retain more independence. Talks about a deal with Time Warner Inc.'s AOL division have accelerated, a person briefed on the discussions said on Wednesday.

"It's an indication that probably Yahoo is less receptive to Microsoft than was initially believed," said analyst Jeffrey Lindsay of Sanford C. Bernstein, referring to the extension.

"It looks as if they've bought themselves several weeks by proposing this delay," he said. "It's probably the maximum they can do without incurring a lot more shareholder ill-will."

After more than a year of intermittent talks, Yahoo rebuffed an offer that Microsoft made public on February 1 valuing the company at $31 per share in cash and stock. Based on current share prices, the deal would value Yahoo at $27 per share.

Yahoo shares rose 2 percent to $28.62 in early trading on the Nasdaq, indicating that investors still expect Microsoft to sweeten its offer. Microsoft gained 2.6 percent to $28.31.


Yahoo Chief Executive Jerry Yang told employees in a letter that the extension would still allow Microsoft to nominate directors to its board, but the main aim was to create some breathing room.

"In light of the current circumstances, this change removes an imminent deadline," Yang said in the letter, which was filed with the U.S. Securities and Exchange Commission.

"Microsoft, of course, could still choose to name directors, but our objective here is to enable our board to continue to explore all of its strategic alternatives for maximizing value for stockholders without the distraction of a proxy contest," Yang said.

Yahoo has said the Microsoft offer significantly undervalues its worth, including a user base of nearly 500 million people as well as lucrative overseas holdings.

Wall Street had viewed that as an effort to wrest a higher price from Microsoft, but Yahoo has since engaged in talks with parties including Rupert Murdoch's News Corp over alternative paths.

Microsoft, for its part, has not publicly budged from its original offer.

"We are fully aware of our options," a person close to Microsoft said.

On Wednesday, the New York Times reported that Yahoo was looking to delay its annual meeting to give it time to look for alternatives.

Since Yahoo's shareholder meeting took place on June 12 last year, it could be forced to hold its 2008 meeting no later than mid-July. Delaware law allows companies to wait up to 13 months between annual meetings.

Companies need to notify shareholders of a meeting date between 10 and 60 days ahead of time.