RealTime IT News

Yahoo Calls Microsoft Out on Bid Ultimatum

Responding to an ultimatum Microsoft (NASDAQ: MSFT) CEO Steve Ballmer sent over the weekend calling on Yahoo (NASDAQ: YHOO) to come to the bargaining table, Yahoo responded today with its own letter, reiterating its position that the initial offer undervalues the company's worth in light of its global brand value and prospects for future growth.

"Our board's view of your proposal has not changed," CEO Jerry Yang and Chairman Roy Bostock wrote in the letter. "We continue to believe that your proposal is not in the best interests of Yahoo and our shareholders."

In his letter, Ballmer said that if Yahoo continued to stonewall, he would initiate a proxy contest to replace the board of directors, and warned that such a contingency could reduce the ultimate settling price.

"We consider your threat to commence an unsolicited offer and proxy contest to displace our independent baord members to be counterproductve and inconsistent with your stated objective of a friendly transaction," Yang and Bostock wrote.

These two salvos came following a lull in the high drama that has characterized the fallout from the initial bid of Jan. 31. If consummated, the merger would dramatically reshape the competitive landscape of the Internet economy, creating a powerful force in Web content and display advertising, and, Microsoft hopes, a viable No. 2 behind runaway market leader Google (NASDAQ: GOOG) in search advertising.

In defending Yahoo's holdout, Bostock and Yang cited the flurry of product announcements the company has made recently as a signal that it is undertaking a transformation strategy that will restore value to the company. Earlier today, it offered details about AMP, the streamlined advertising management platform that it plans to launch in the third quarter.

In other recent moves, Yahoo has opened its search, e-mail and mobile products to developers, embraced the Semantic Web and OpenSocial initiatives. IDC analyst Karsten Weide said that with this broad-ranging push toward open innovation, Yahoo has been making a strong case that it can turn its fortunes around, but it remains to be seen how patient the shareholders will be.

Something Cool at Yahoo

"They're trying to impress on their shareholders that it might be worth their while to hold out," Weide told InternetNews.com. "It's almost like they're getting their mojo back. There's definitely something cool going on at Yahoo."

Part of the problem is that Microsoft's bid of $31 a share represented a 62 percent premium to Yahoo's stock price at the time. Yahoo's stock soared on news of the bid, and it has been unable to broker an alternative deal that would give it a valuation as high as Microsoft's offer.

Ballmer wrote in his letter that the two companies had met, but that no substantive negotiations had taken place. In the meantime, he said, the economic picture has darkened, particularly for Internet companies.