Wednesday, February 13, 2008

Yahoo, News Corp. said to be in talks

Rupert Murdoch may make an unlikely white knight, but his News Corp. conglomerate is reportedly coming to Yahoo's rescue.
For almost two weeks, Yahoo has been trying to fend off a potential sale to Microsoft, which offered to buy the beleaguered Sunnyvale company for $44.6 billion on Feb. 1.
On Monday, Yahoo's board of directors formally rejected Microsoft's offer saying it "substantially undervalues" Yahoo's global brand and audience, as well as other assets.
The Wall Street Journal, which is owned by News Corp., reported today that its parent company is considering taking a stake in Yahoo that could exceed 20 percent.
Earlier this month, Murdoch ruled out making a direct bid for Yahoo. News Corp has only $3.5 billion in cash, compared to Microsoft's $21 billion, and would need help from private equity firms to purchase even part of Yahoo.
One scenario reportedly under discussion calls for News Corp. to give MySpace to Yahoo in addition to cash. According to the Journal, News Corp. believes MySpace is worth between $6 billion and $10 billion. In return, News Corp. would get a stake in Yahoo.
Ben Schachter, an analyst with UBS, said in a note that such an arrangement would likely be nixed by antitrust regulators because it would require Yahoo to outsource its search advertising business to Google.
"We believe that Microsoft will do what is necessary to get the deal done, and we don't believe its first

Higher Yahoo bid could cost investment banks

SEATTLE — Five major investment houses that together hold more than $50 billion worth of shares in both Microsoft (MSFT) and Yahoo (YHOO) could lose big if Microsoft pays $35 to $40 a share for Yahoo.
That's because those holdings are heavily weighted toward Microsoft shares — and any increase in the bid price above the standing offer of $31 a share, or $44.6 billion, would ratchet down Microsoft's already sinking share price even more, stock analysts say.
Microsoft declined comment, as did spokespeople for Capital Research and Management, Barclays Global Investors, State Street, Vanguard Group and Goldman Sachs Group, the five big investment houses that hold large blocks of Microsoft and Yahoo shares.
Microsoft CEO Steve Ballmer appears to be under rising pressure by big shareholders to make the $31-a-share opening offer stick. One reason: Paying $35 to $40 a share for Yahoo would drive down Microsoft's projected earnings through its 2011 fiscal year, says Robert Breza, tech stock analyst at RBC Capital Markets.
Breza recalls that big investors avoided Oracle (ORCL) shares for 18 months after it acquired PeopleSoft and wouldn't touch Hewlett-Packard (HPQ) shares for years after it bought Compaq. "This deal needs to get done quickly and in a friendly way," says Breza. "Then, I think it will take, at minimum, another 12 months for investors to come back to Microsoft."
FIND MORE STORIES IN: Microsoft Yahoo News Corp Goldman Sachs Group Steve Ballmer Capital
Yahoo on Monday rejected the $31-a-share offer, giving rise to speculation that it is courting a white-knight investor, such as AOL or News Corp. (NWS), to help it stay independent. A source briefed on the matter says talks to sell a 20% stake to media giant News Corp. are highly unlikely to result in anything. The source requested not to be named because talks are ongoing.
A tie-up with AOL would boost Yahoo's online advertising efforts but be expensive to consummate, says Shahid Khan, principal analyst at IBB Consulting Group. "It may distract Yahoo from getting its own act together," says Khan.
Jeffrey Lindsay, an analyst at Sanford C. Bernstein, says reported talks with potential white knights are "a ploy to drive up Microsoft's bid offer." Lindsay expects Microsoft to hold firm for now at $31, then perhaps up the bid to $35 or $36 within two weeks. "The pressure will really be on Yahoo to accept," he says.
Ballmer's next move may be to rally big shareholders to back a hostile takeover bid, says David Mitchell, senior vice president of IT research at Ovum. That could take the form of a tender offer made directly to shareholders or a proxy fight to win control of the Yahoo board.
"Unless Yahoo gives details of an alternative plan that will realize more value for these (institutional investors), then I can see a good chance that they will want to take the bird in the hand from Microsoft," says Mitchell, adding that he expects Microsoft to "ramp up hostile activity in the next day or so."
As co-founder of tech investment firm Revolution Partners, Peter Falvey has helped sell several companies to Microsoft. He agrees that Microsoft seems likely to resist sweetening its offer. "Everyone assumes they will pony up more money because they're Microsoft," says Falvey. "But Microsoft got where it is by not caving in."
Big investors in Yahoo who do not hold any Microsoft shares obviously want to see more cash on the table. In a Feb. 10 letter to investors in Legg Mason, which holds more than 100 million shares of Yahoo, portfolio manager Bill Miller called for Microsoft to "enhance its offer if it wants to complete a deal."
But Miller also acknowledged that Microsoft "will do what it takes" to consummate the deal and that it "will be hard for (Yahoo) to come up with alternatives that deliver more value than (Microsoft) will ultimately be willing to pay."

Monday, February 11, 2008

Yahoo rejects Microsoft, turning up takeover heat

Search engine risks bid turning hostile, and faces a challenge convincing shareholders
YAHOO, the world's second-biggest internet search engine, is risking a heated battle with software giant Microsoft after rejecting its $44.6 billion (£22.9bn) bid as "too low".After more than a week evaluating the cash-and-share offer, the Californian group announced that the bid, which when announced was at a 62 per cent premium to its share price, "substantially" undervalued the company and its prospects.Yahoo chief executive Jerry Yang, who co-founded the company in 1995 as a college student, told employees that investments and acquisitions would help attract more visitors to the company's websites. "The proposal is not in the best interests of Yahoo and our stockholders," Yang wrote in an e-mail to the group's 14,000 staff.Yahoo said its board was united in its rejection of Microsoft's offer, but continually reviewed ways to boost share value. Google, the web search leader, is understood to have offered Yahoo support and there have been suggestions it could end up providing Yahoo with its search engine in an outsourcing arrangement.Yahoo is also reported to have been considering resurrecting its merger talk with internet provider AOL.It is also thought that the company would be prepared to give in to Microsoft if it were to offer at least $40 a share, though most analysts believe a deal could be done below this level.Last night Microsoft was refusing to comment on its immediate plans. The Seattle-based company was rumoured to be prepared to turn hostile in its bid, by ousting the Yahoo board if it did not get its way. However, there have also been reports that the company is reluctant to risk alienating key Yahoo staff by taking such an aggressive approach.Microsoft began stalking Yahoo last year, frustrated at the growing dominance of Google. W
orldwide online advertising sales could top $80bn by 2011 according to some analysts. In 2007 Google's sales rose almost seven times faster than Yahoo's. Yahoo said yesterday its "global brand, large worldwide audience, significant recent investments in advertising platforms and future growth prospects, free cash flow and earnings potential" gave it scope to reject the bid.But it will face a challenge convincing shareholders that plans that have yet to come to fruition will have an impact on profits.Yahoo has reported eight consecutive quarterly falls in profits, prompting a steep decline in share price before Microsoft expressed interest. In early trading yesterday the Nasdaq-listed shares had risen 35 cents to $29.55. That is about 2.5 per cent above the value of Microsoft's current offer, which after falls in its own share value, has dropped to less than $29.

Sunday, February 10, 2008

State won't relieve mortgage of Sderot's 'house hostages'

Larissa Cuzin's 8-year-old daughter came back from school on Sunday and told her mother about her classmate, Osher Twito, whose leg was amputated after being wounded by a Qassam rocket. "She does not get hysterical when she hears someone is hurt or when they sound the siren," her mother said. "But after an hour or two, her head begins to hurt. When she was little, she smiled all the time. Now she never smiles. She's serious all the time and cries for no reason." The Cuzin family is one of a few hundred families who want to leave Sderot but cannot because they are "house hostages," as lawyer Yuval Albashan, the deputy director-general of the Association for Community Empowerment (ACE), puts it. The state refuses to help families leave Sderot in an effort not to project an image of defeat, effectively holding them hostage, Albashan said.
Cuzin pays a mortgage of NIS 2,500 a month for an apartment with a garden that she bought a decade ago. Her eldest son left for Ashkelon, her husband works in Holon. She worked for a solar panel company that shut down because of low demand, and the tiles on the walls of her office were torn down by the impact of a Qassam rocket. "I love my home, I fixed up the garden nicely, but I'm constantly scared," she said. No one will rent or buy the place. Even if she were to sell, she said, the money she would receive in return would not allow her buy an apartment anywhere else. Nor can she pay the mortgage while also renting an apartment in central Israel. "I don't see a solution. I can't help my children, or myself," Cuzin said. Those with mortgages are not the only ones unable to leave. Thousands of people who live in public housing are also in the same predicament. Dozens have asked the Housing Ministry to leave, many of whom are senior citizens. But the security situation is not considered a valid argument to receive alternative accommodation. In light of the their plight, ACE has asked the supervisor of banks, the housing minister and the Prime Minister's Office to freeze mortgage payments of Sderot residents who seek to temporarily leave and to help them resettle in another city in the South for a period of six months to a year. In response, the supervisor of banks said he saw no reason to intervene. "Assisting Sderot residents and the Gaza envelope pay the rent is akin to declaring the evacuation of settlements," said Israel Schwartz, the deputy director-general of the Housing Ministry. ACE is currently considering petitioning the High Court to demand that the state offer Sderot residents the opportunity to move to another city.

Days of zero-down mortgages over

The days of zero-down mortgages, which helped to fuel the real estate boom, are coming to an end in Michigan. The mortgages helped many buyers who lacked savings become homeowners in the past few years, but zero-down mortgages now are seen as a risky lending practice as defaults rise and housing prices fall.
The change means thousands of "for sale" signs in metro Detroit aren't going to disappear anytime soon as tougher loan qualification requirements reduce the pool of potential buyers, leading to further erosion of home prices.
Iraq war veteran Kelly J. Shannon Jr., 24, said he and his wife had been renting a townhouse for three years. The huge array of homes at falling prices was motivation.
"It was like a candy store, and we could pick out anything we wanted," he said.
The Shannons ended up getting their first home in Westland for $34,000 off the original listing price of $162,900.
They were set to close Feb. 15 on their 1,190-square-foot house across the street from an elementary school. But their broker at Citizens First Mortgage called last week and said if they didn't close by Jan. 31, they would lose the zero-down option.
The rush to close on zero-down deals is the result of a letter that mortgage backer Fannie Mae sent to lenders in December reiterating its rule that requires a minimum 5% down payment on homes sold in declining markets.
Many counties in Michigan and other states are considered declining markets by mortgage companies and banks. That means mortgage brokers cannot sell the zero-down loans to Fannie Mae and Freddie Mac, the two largest backers of home mortgages in the United States. They buy home loans from lenders and banks and sell them as securities on Wall Street.
Foreclosures in Michigan rose 68% in 2007, fueling the nation's third-highest foreclosure rate last year.
"It has essentially wiped out most of our zero-down products for people buying conventional mortgages," said Greg Pompura, president of Elk Financial in Southfield. "It is a battle every day to try and finagle a loan for people."
Where Michigan stands
Since the subprime-mortgage bust last year, Fannie Mae and Freddie Mac are among the few remaining buyers for loans that banks and mortgage companies write. If a loan doesn't conform to the companies' standards, banks must carry it on their books, which few banks prefer to do.
Troy-based Flagstar Bank lists 20 Michigan counties, including Wayne, Oakland and Macomb, as declining. CitiMortgage lists nine Michigan counties as declining as of Jan. 18.
"I don't know of anyone who is not enforcing a declining-market policy right now," said Linda Terrasi, senior vice president of Flagstar. "What you are going to find is like the olden days, where you will need to have 5% down."
The declining-market rule doesn't apply to Federal Housing Administration, or FHA, loans, so people still can try for zero-down mortgages if they can obtain seller concessions, mortgage experts say.
There are other things potential buyers can do to buy a home with little or no money down, Terrasi said. FHA still requires 3% down, including some closing costs, but there are ways to work around that.
And if you are planning to buy a foreclosed home from the U.S. Department of Housing and Urban Development, also known as a HUD home, FHA offers a $100-down program in Michigan with $2,500 to go toward repairs. It must be an owner-occupied home, a rule that blocks investor purchases, she said. Congress is considering lowering down payment requirements on FHA loans and raising the loan limits.
Bob Walters, chief economist for Quicken Loans in Livonia, said consumers should talk to lenders before counting out a zero-down mortgage. People with credit scores below 640 would face the biggest challenges, he said.
"The opportunities have been diminished, but they are not completely gone," Walters said. "We are seeing a lot less people buying homes with no money down. I can't put a percentage on that, but it is significant."
Brad German, spokesman for Freddie Mac, said reminding lenders of the policy was in response to the deteriorating credit market and increased risk in the mortgage market.
"This has been a longstanding policy, but it is now having more of an impact because more markets have seen prices declining," German said.
Lenders' fears
Skittish lenders don't want to make a loan on a property whose value might fall in a matter of months, leaving the homeowner owing more than the home is worth.
Since January, banks have reported $146 billion in losses on U.S. mortgage securities, Bloomberg News says.
About 55% of banks had tightened their lending standards for home mortgages in January, up from 40% in October, according to a Federal Reserve Bank survey released Monday.
"Lenders got pretty loose with their money in the past couple of years. They are retightening their standards," said John Mechem, spokesman for the Mortgage Bankers Association. "No down ... is going to be a very difficult loan to obtain in the future, if it ever comes back. There is not a lot of appetite for that kind of risk right now."
Real estate agents and mortgage brokers bemoan the tighter lending practices at a time when home prices have fallen to open the market for first-time buyers. They are struggling to find buyers for the thousands of foreclosed homes on the market, especially with the large inventories of owner-occupied and new homes for sale.
"I think it's an overcorrection to get rid of zero-down mortgages. Now the pendulum is swinging too far the other way," said Drew Sygit, a certified mortgage and equity planner for Meadowbrook Mortgage in Bloomfield Hills.
"We are missing an opportunity to slow down the depreciation we are facing. You have a lot of people who would buy right now because the prices are declining," he said. "They know it's a great time to buy, but they don't have the money."

Tech Convention To Get First Glimpse of Google’s Phone

Techies around the world will finally get a peek at Google Inc.’s (GOOG) long-anticipated Android mobile phone platform at the Mobile World Congress in Barcelona, Reuters reported, citing an unnamed source at the company.
The Internet search giant’s highly anticipated wireless phone platform will be demonstrated by British chip designer ARM Holdings PLC (ARMHY) at the world’s biggest wireless fair.
The Android platform is a software stack for mobile devices, including an operating system and applications. It allows developers to write, edit and debug applications.
Reuters also reported that Google plans to "deploy phones and services using the Android platform commercially in the second half of this year."
Judging by the number of tech blogs exploding with delight, criticism and curiosity, the release of Google’s phone will no doubt create a buzz equal to or greater than the hype leading up to "iDay" - June 29, 2007 - the day Apple Inc. (AAPL) launched its now-white-hot iPhone.
Despite all the chatter from the tech world, Google has remained mum about its wireless-communications aspirations. However, the company has been racking up a portfolio of patents that show it is preparing to enter the mobile-phone market [as well as the video gaming and TV markets], InformationWeek reported, citing research from Evalueserve, a global research-and-consulting company.
There’s even been heavy speculation that Google would become a bidder for wireless spectrum licenses, either now or in the future. However, UBS AG (UBS) just last week reported that Google has likely dropped out of the current "C-Block" wireless license auctions that the Federal Communications Commission is holding to sell licenses for broadcasting spectrum once used by analog TV broadcasters.
Whatever Google’s route, the fact that it’s officially moving forward signals that there’s a new entrant in the battle for cell-phone supremacy. Before Apple stuck its nose into the market last June, the main players were Nokia (NOK), Samsung Corp., and Motorola Inc. (MOT).
With a 40% market share, Nokia is still by far the sector leader. But with the sheer amount of cash, intellectual capital and marketing firepower that Google and Apple have in their arsenals, they will block out aspiring new entrants while also making it tougher than ever for the current players to remain competitive.Consider Motorola. In recent weeks, Motorola effectively announced it was putting its handset unit up for sale - although analysts say it will be a tough sell to get someone to buy it outright. The Schaumburg, Ill.-based company was once the industry leader, and was viewed as the most innovative handset manufacturer in the business.
Activist investor Carl Icahn took a 5% stake in Motorola Wednesday, according to a filing with the SEC. Icahn said he acquired Motorola shares in the belief that they were undervalued, MarketWatch reported. Icahn’s affiliates own about 114.4 million Motorola shares, up from about 75.58 million shares, or a 3.3% stake, they held as of Sept. 30, according to the filing.

This time, Microsoft may meet its match in Google

The firm is back to its aggressive ways in its Yahoo bid. But the real fight is with Google, and it's the underdog.

Bill Gates worried that something like Google would come along before it even existed.In 1995, the Microsoft leader recognized how a powerful Internet player could topple his company from the high-tech pyramid and launched an attack on all potential threats. Netscape, Sun Microsystems and other competitors paid the price.
So did Microsoft. Its tactics triggered a landmark antitrust case that handcuffed the software giant for a decade, hampering its ability to respond when the real Web boogeyman appeared: Google Inc.But today the shackles are off. Largely unconstrained by the antitrust problems that have dogged it since the late 1990s, Microsoft is the aggressor again.Its surprise $44.6-billion offer for Yahoo Inc. capped off a year in which Microsoft proved that it was serious about the Internet and willing to throw around its cash hoard.Yahoo's board of directors has decided to reject the offer, a person familiar with the matter said Saturday. The person, who is close to Yahoo management, said the company planned to tell Microsoft in a letter Monday that the deal undervalues the Internet company and fails to offset its risk if regulators were to overturn the merger.Although Yahoo doesn't want to sell to Microsoft, it has few alternatives. Many analysts expect Microsoft to sweeten its offer, and Yahoo to accept it.If it wins Yahoo, the Redmond, Wash.-based software giant will have pulled off by far the largest acquisition in its 33-year history to try to keep Google from getting further ahead."Microsoft tends to be a reactive company," said Mark Anderson, an entrepreneur and author of an industry newsletter that counts Gates and Microsoft Chief Executive Steve Ballmer among its subscribers. "They also tend to always be focused on their competition, even down to the individuals that run divisions on both sides."Google is lobbying against a potential Yahoo deal, saying Microsoft can't be trusted. Microsoft counters that it isn't the dominant player in Web advertising as it is in operating systems and office productivity software.Pulling for former foeFearful of the new giant on the block, some of Microsoft's old enemies are rooting for it.For years, Chris Tolles had a front-row seat to the brutal side of the so-called Beast from Redmond. The software developer worked at companies that went head-to-head with Microsoft, including Sun and Netscape.But now he's running Topix, a Silicon Valley company that offers local news and other information online. Google launched a competing product last week."Creating a valid competitor for Google would be very helpful to the industry," Tolles said. "That's the irritating part: I'm rooting for Microsoft."Microsoft, which declined to comment, doesn't enjoy the underdog role.After its previous attempts to acquire Yahoo or strike a partnership were rebuffed, Microsoft made an unsolicited bid for the company Jan. 31 and announced it the next day. The half-cash, half-stock bid valued the struggling Internet company at $31 a share -- 62% more than its stock's closing price Jan. 31. But with the slump in Microsoft's share price since then, the offer's value has declined to $29.08 a share. Investors expect Microsoft to offer more."We keep at things," Ballmer told employees when the bid was announced. "We don't start and stop."It's been a long, eventful struggle since Microsoft began its online push.In a lengthy memo sent to Microsoft executives May 26, 1995, Gates warned that the young World Wide Web could spawn a competitor to threaten the software giant's computing dominance. He assigned the Internet "the highest level of importance."