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Go Time: Microsoft Hands Yahoo an Ultimatum

Tick tock. We've been watching this mating dance for some time now. Well, Steve Ballmer's had enough.

In a letter sent to Yahoo's board of directors dated today, Microsoft's CEO gave the embattled Web pioneer a hard-fisted deadline to come to the bargaining table in good faith before taking his company's acquisition bid hostile, also seizing the opportunity to vent his impatience with the molasses pace that the process has taken.

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"It has now been more than two months since we made our proposal to acquire Yahoo at a 62 percent premium to its closing price on Jan. 31," Ballmer wrote, reiterating that Microsoft's initial offer was "generous."

"If we have not concluded an agreement within the next three weeks, we will be compelled to take our case directly to your shareholders, including the initiation of a proxy contest to elect an alternative slate of directors for the Yahoo board."

Ballmer also indicated that if Yahoo continued to stonewall, Microsoft might lower its bid, initially valued at $44.6 billion, or $31 a share.

"The substantial premium reflected in our initial proposal anticipated a friendly transaction with you. 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," the letter said.

Most analysts have expected that the two companies would eventually agree on deal priced around the mid-$30's.

In the time since Microsoft made its [bombshell offering](/bus-news/article.php/3725431/Microsoft+Looks+to+Buy+Yahoo.htm), Yahoo has done everything in its public communications to pretend that it never happened. The company has pressed on with its starting-point-of-the-Web transformation strategy with announcements of new features for its [Web search](/webcontent/article.php/3730536/Yahoo+Puts+Its+Ear+to+The+Ground+With+Buzz+Site.htm), [e-mail](/xSP/article.php/3720186) and [mobile](/mobility/article.php/3727671/Yahoo+Not+Sitting+Still+on+Mobile.htm) products, as well as support for the [Semantic Web](/dev-news/article.php/3734136/Yahoo+Gets+Into+Semantics+And+Likes+it.htm) and Google's [OpenSocial](/webcontent/article.php/3736556/Rivals+Yahoo+Google+Ally+on+Social+Network+Apps.htm) initiative.

But it has been impossible to regard any of these initiatives without looking through the prism of the Microsoft acquisition bid.

Ballmer said that there had been "limited interaction between management of our two companies," but that Yahoo had not entered into "substantive negotiations."

While Yahoo has been (reportedly) talking with AOL, News Corp., Google and foreign equity groups in search of a viable alternative, none has surfaced, Ballmer said. In the meantime, the macroeconomic picture has worsened.

"During these two months of inactivity, the Internet has continued to march on, while the public equity markets and overall economic conditions have weakened considerably, both in general and for other Internet-focused companies in particular," he wrote.

While Yahoo has maintained that Microsoft's offer substantially undervalues the company's worth, the failure to deliver an alternative solution coupled with today's letter could suggest that the companies are entering an end-game scenario in which Yahoo will be forced to come to the table in a compromised position.

At least seven shareholder groups have already brought [class-action lawsuits](/bus-news/article.php/3731041) against Yahoo's board, claiming that the company has breached its fiduciary duty in reacting to the bid.

"It is unfortunate that by choosing not to enter into substantive negotiations with us, you have failed to give due consideration to a transaction that has tremendous benefits for Yahoo's shareholders and employees," Ballmer wrote.

"We think it is critically important not to let this window of opportunity pass."

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