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Yahoo Pushes Back Board Deadline Amid Pressure

With Microsoft (NASDAQ:MSFT) poised to go hostile in its takeover bid, Yahoo (NASDAQ:YHOO) has extended the deadline to nominate directors to its board from March 14 to 10 days after it announces the date of its annual shareholders' meeting.

Under the original deadline, Microsoft was expected to nominate its own slate of candidates next week to oust Yahoo's 10-member board.

The extension comes as Yahoo's deal makers have failed to craft an alternate proposal that would be acceptable to the board.

It's not for lack of trying. Citing unnamed sources, The Wall Street Journal reported today that Yahoo has reopened discussions with Time Warner (NYSE:TWX) in pursuit of a tie-up with AOL.

This comes after Yahoo reportedly has been exploring various alliances with Google, News Corp. and various private-equity firms.

The latest negotiations would have Time Warner taking a large minority stake in Yahoo, which would integrate AOL into its operations, creating a powerful online advertising force.

Time Warner CEO Jeffrey Bewkes has already said that he plans to separate AOL's online media division -- which includes the powerful Platform A advertising properties -- from the fading dial-up business.

A Yahoo connection would give Time Warner new opportunities to expand its digital media offerings.

For Yahoo, the advantage would be less in search advertising than in third-party placement, where Yahoo and AOL both maintain robust businesses.

IDC analyst Karsten Weide said that the extension of the nominating deadline is the likely result of the Time Warner talks. If Time Warner would roll AOL into Yahoo in exchange for a 20 percent to 30 percent stake in the company, it would want to put a couple of its own people on the board, he explained to InternetNews.com.

"Yahoo needs to give themselves leeway to suggest Time Warner candidates to the board," Weide said. "The executive team at Yahoo would do almost anything not to go together with Microsoft."

But that is very likely how it will happen, Weide said. While Yahoo's executives might prefer swallowing a rusty fishhook over acquiescing to Microsoft's bid, the board is legally obligated to deliver the greatest possible value to shareholders.

Weide believes that the chances of a Time Warner alliance accomplishing that are so remote that a formal offer will not ever appear before the board. However, since Time Warner would only agree to the deal if it had access to the board, Yahoo had to extend next Friday's nominating deadline to keep the option alive.

A more likely scenario casts the Time Warner talks as a bargaining chip for Yahoo to squeeze more money out of Microsoft. IDC gives a 75 percent probability to the ultimate consummation of the merger, after Microsoft has sweetened the bid.

"What we currently see is the mating dance," Weide said, adding that a figure of around $35 per share seems a likely compromise. Microsoft's original offer was $31 per share, though since the value of the half-cash-half-equity bid fluctuates with Microsoft's stock price, it is now valued at less than $29 per share. Yahoo is believed to be looking for around $40 per share.

In all of its public statements, Microsoft has stuck by its original bid.

[cob:Special_Report]Microsoft's offer gave Yahoo's stock a tremendous lift following three months of steep decline. In late October, shares of Yahoo reached $33.63; by Jan. 31, Yahoo had fallen to $19.18.

Then the next morning Microsoft announced its bid before the market opened, and the day's trading vaulted Yahoo to close at $28.38. Last night, Yahoo closed at $28.06.

Further complicating matters is the mounting shareholder discontent: Since Feb. 1, at least seven shareholder groups have brought class-action lawsuits against Yahoo's board, charging the directors with breaching their fiduciary duty in how they have responded to the bid.

Moving the nominating deadline forward buys Yahoo some time, but not much.