Last Call For Yahoo on Deal With Microsoft


Deadline looms in proposed merger.

Microsoft (NASDAQ: MSFT) gave Yahoo (NASDAQ: YHOO) no hope of a higher takeover price, saying it was ready to go hostile or even call off its bid if Yahoo maintains “unrealistic expectations” of a better deal.

“Speed is of the essence for the deal to make sense,” Microsoft Chief Financial Officer Chris Liddell said on a conference call on Thursday. If no deal is reached by this weekend, Microsoft will reconsider its offer and reveal new plans next week, he said.

“Unfortunately, the transaction has been anything but speedy and has been characterized by what would appear to be unrealistic expectations of value,” he said of Yahoo’s moves to frustrate Microsoft’s unsolicited merger proposition.

Microsoft sees Yahoo as a way to compete with rival Google (NASDAQ: GOOG) in the Internet search and advertising arena, but company executives have repeatedly said they have limits to what they are willing to pay to get a deal done.

“We have yet to see tangible evidence that our bid substantially undervalues the company,” Liddell said, referring to Yahoo. “In fact, we see the opposite.”

Liddell reiterated a threat Microsoft made three weeks ago to Yahoo’s board of directors that it would consider cutting its bid, now worth about $44 billion, and take its case to Yahoo shareholders if a deal is not reached by this Saturday.

“As outlined in our recent letter to the Yahoo board, unless we made progress with Yahoo towards an agreement by this weekend, we will reconsider our alternatives,” Liddell said.

“These alternatives clearly include taking an offer to Yahoo shareholders or to withdraw our proposal and focus on other opportunities,” either from internally generated growth or growth through acquisitions, the Microsoft executive said.

He was echoing a public threat made by Chief Executive Steve Ballmer at a conference near Milan on Wednesday that Microsoft would withdraw its cash-and-stock offer, originally for $31 a share, if Yahoo does not start negotiating.

Ballmer also said Yahoo’s better-than-expected first-quarter results, reported on Tuesday, had not changed Microsoft’s view of its value.

The tough talk appeared to be a final public attempt to bring Yahoo to the negotiating table before the nearly three-week-old deadline expires. Yahoo has said it is open to considering a deal with Microsoft, among other alternatives, but only if Microsoft boosts its offer.

“A proxy battle seems increasingly likely,” William Blair analyst Troy Mastin said. “It sounds [like] Yahoo’s got a price in mind somewhere north of $35 and Microsoft has a price in mind somewhere south of $35.”

Stanford Group financial analyst Clayton Moran said Microsoft appears ready to walk away if Yahoo does not act: “In a sense Yahoo, by playing hardball, is really playing with fire because they have limited alternatives,” he said.

Earlier on Thursday, Microsoft reported weak Windows sales for its fiscal third quarter ended in March and gave a forecast for the fourth quarter ending in June at the low end of Wall Street expectations, sending its shares down nearly 5 percent.

During the conference call, which principally focused on a discussion of Microsoft’s own quarterly results, Liddell noted that two times as many callers were listening and he speculated that this was tied to widespread interest in the Yahoo deal.

In regular session trading on NASDAQ ahead of the results, Microsoft shares closed up 1.1 percent at $31.80, while Yahoo fell 2.8 percent to close at $27.30. After the report, Microsoft stock fell 5.1 percent to $30.18, and Yahoo dipped a further 1 percent to $27.01.

To regain the bid’s full $31-a-share value, Microsoft’s stock would have to rise to $32.60, the closing share price on Jan. 29, a day before Microsoft presented its unsolicited offer to Yahoo’s board.

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