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Microsoft's Bid Goes Hostile, but Yahoo Stands Firm

Yahoo's board of directors got a letter from Microsoft's CEO Steve Ballmer over the weekend about Yahoo's slow response to Microsoft's proposed takeover bid.

• By Kurt Mackie
• April 07, 2008

The letter, dated April 5, laid out the makings of a hostile takeover of Yahoo.

"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's letter read.

Today, Yahoo's board issued a letter in response, which didn't budge and repeated earlier rejections of Microsoft's takeover bid as undervaluing Yahoo for its shareholders.

Ballmer's threat of packing Yahoo's board would have an adverse effect on Yahoo's stock, Ballmer noted in his letter. It would lower the value of Microsoft's proposal to Yahoo. Ballmer claimed that Yahoo's delays since the initial buyout offer have already reduced Yahoo's search and page-view shares.

This latest salvo reflects earlier reports that Microsoft's executives have grown impatient with Yahoo's refusal to accept the deal. Microsoft's sent its unsolicited takeover to Yahoo on Jan. 31, 2008.

Microsoft's initial cash plus stock deal offered $31 per share of its common stock, which initially set the value of the deal at $44.6 billion. However, Microsoft's stock value had declined as of Friday to $27.72 per share.

Ballmer's letter said that the initial offer -- a 62 percent premium -- was intended to create "a speedy and ultimately friendly transaction." In response, the Yahoo board letter stated that Microsoft's offer and Ballmer's threat to replace the board were "counterproductive and inconsistent with your stated objective of a friendly transaction."

Yahoo has tried to get alternative acquisition deals going with News Corp. and more recently with Time Warner. However, News Corp. seems to have bowed out. Its Chairman, Rupert Murdock, suggested that such a deal would not happen if that meant a fight with Microsoft.

Microsoft officials have suggested various reasons for wanting to acquire Yahoo, which have ranged from building up its "social networking" and entertainment capabilities, plus boosting Microsoft Live offerings, which are Microsoft's online-delivered solutions.

Some observers have suggested that Microsoft wants Yahoo to help thwart Google in competition over Web ad revenues. Google is currently solidifying its acquisition of online ad firm DoubleClick.

As if to underscore Yahoo's value in that respect, the Yahoo board letter described how Yahoo is improving its online ad structure.

"Today, in fact, we are announcing AMP! from Yahoo!, a new advertising management platform designed to dramatically simplify the process of buying and selling ads online," the Yahoo board letter stated.

AMP is a software tool that helps advertisers buy up "impressions" for online ads and target their audience based on demographics. The platform is still being reviewed by Web content publishers.