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."

Ballmer ponders next move in Yahoo fight

Steve Ballmer, Microsoft's chief executive, may well have thought that he had landed a knock-out blow with his opening takeover offer for Yahoo, putting an initial 62 per cent premium on the struggling internet company.
If so, then the letter that lands on his desk today will make him think again. Yahoo has decided to fight - though whether it is fighting for its own independence, or just to get a higher price out of Microsoft, was a matter of debate among onlookers over the weekend.
The letter spurning his offer will take the Microsoft CEO even further into uncharted waters as he ponders his next move.
Though it has mounted a string of acquisitions of smaller companies, Microsoft for years rejected the blandishments of investment bankers who argued it should consider a big deal.
Now Mr Ballmer must contemplate a move that even CEOs with considerable experience in the takeover market think twice about: mounting an all-out hostile bid, with the risk not only of rejection, but that he will cause damage to the target company and tie up the attention of his own senior management for months.
If Mr Ballmer is seeking inspiration for his next step, he might look to the example of rival software boss Larry Ellison, who has virtually written the textbook on how to pull off unsolicited takeovers in the software industry.
Oracle's capture last month of BEA Systems was being held up by technology bankers last week as the closest recent Silicon Valley parallel to the Yahoo bid.
By going public with an offer to buy the company, Mr Ellison forced BEA into a desperate hunt for "white knights" to save the company before it eventually started secret talks that led to an agreed deal with Oracle at a higher price.
Mr Ellison made it clear that he was prepared to take his fight to shareholders if need be.
For Mr Ballmer, though, that decision will come much faster: if he wants to try to replace Yahoo's directors with Microsoft's own nominees at this year's annual meeting he has little more than a month to act, leaving little time for public posturing and private negotiating to bring this to a more amicable end.
A number of similarities - and differences - with the BEA situation point to the issues that are likely to determine Microsoft's moves in the coming weeks. The first is that BEA's directors had a shareholder agitator in the shape of Carl Icahn pushing them publicly to sell the company. Yahoo's biggest shareholders - Capital Research and Legg Mason - have yet to take a public stance over the Microsoft bid, though rumours have been heavy that they have both told the internet company it should make sure it does not let the massive premium implied in Microsoft's bid slip away.
A representative from Capital Research met with Mr Ballmer last week, according to one person familiar with the meeting. With big stakes in both companies, however, Capital Research is interested in more than simply seeing Yahoo attract the biggest possible premium, and it is not clear how it would feel about Microsoft raising the value of its offer.
A second comparison with BEA is the hunt for white knights or other alternatives to fend off an unwanted takeover. In BEA's case, no one else stepped forward - in part because of the low odds of competing successfully against Oracle. With the ability to reap big cost-savings by rationalising overlapping businesses, and with the financial might to see off rival bidders, Oracle was a daunting adversary.
Similar considerations apply in the Microsoft case. No other acquirer could reap the $1bn of cost savings Microsoft has said is possible, making it hard to justify paying more.
That leaves a possible search advertising alliance with Google as the most likely alternative, though regulators may well baulk at a deal that leaves Google in an even more dominant position in the most important part of the online advertising market.
A final question for Yahoo would be whether, in the absence of a strong alternative, it can find other ways to Microsoft to pay more. One person close to Microsoft said that companies in such situations generally do not "bid against themselves", particularly if the opening shot was at such a premium. However, Microsoft has acknowledged publicly that it sets a high store on being able to complete a deal quickly.
"It's not clear whether they will blink or if they'll offer more," said Carl Tobias, a law professor at the University of Richmond. "They may just stand pat."
If so, then Yahoo's directors seem ready to dig in, and Silicon Valley is in for a bloody fight.

Microsoft to target Yahoo investors

Microsoft is gearing up to take its bid to acquire Yahoo directly to the Silicon Valley company's shareholders after the expected rejection by the Yahoo board of the software group's $31-per-share offer.
Yahoo intends to turn down officially the unsolicited bid today, according to a person close to the situation.
The moves pointed to the possible outbreak of a protracted and bloody takeover battle but they are seen in some quarters as opening shots in a negotiation of how much Yahoo is worth and what Microsoft should pay to win control.
Yahoo's board held its first formal meeting on Friday to discuss the February 1 cash-and-shares offer, which is currently valued at $41.8bn. It had decided that what was on the table massively undervalued the company, the insider said.
The company is expected to send a letter to Microsoft detailing its position, including the concern that any takeover could be overturned by regulators.
Reports suggest that Yahoo would be unlikely to consider seriously an offer of less than $40 per share. That would add $12bn to the price Microsoft has to pay.
Microsoft has seen the value of its own shares fall 12 per cent since it made the bid.
The software company had been willing to pay $43 a share a year ago, when Yahoo was trading at about $28, according to a person familiar with the months of on-again, off-again talks between the two. Yahoo was trading at about $19 just before Microsoft's bid.
Yahoo's rejection of the offer could set the scene for a protracted struggle for the company. Microsoft could launch a proxy contest and seek to replace Yahoo's board at its annual meeting in June.
Steve Ballmer, Microsoft chief executive, has signalled his company's determination not to take no for an answer. In his letter making the offer, he wrote that his company "reserves the right to pursue all necessary steps".
Microsoft has a team of advisers in place for any proxy fight. It includes Alan Miller of Innisfree, the proxy solicitation firm,Joele Frank, the New York mergers and acquisition public relations specialist, and financial advisers from Blackstone Group and Morgan Stanley.
For Yahoo, Dan Burch at the MacKenzie Partners proxy firm would lobby shareholders to try to secure their votes in favour of the current board.
The expected rejection would give Yahoo time to come up with alternatives to satisfy shareholders disappointed with its poor financial performance. It is understood to be considering handing over its search advertising to Google, a move that would generate considerable revenues and cost savings. Another option would be to sell off its holdings in China and Japan to generate a special dividend.
So far there has been no indication of any "white knight" coming to Yahoo's rescue.

Why Yahoo! said No to bid

Yahoo! is today expected to set out its reasons for rejecting Microsoft's $42bn (£21.5bn) bid for the internet search giant.
The battle for Yahoo!
Yahoo! 'to reject Microsoft bid'
The board of Yahoo! met over the weekend and decided to reject the $31 a share offer but analysts suggested it is likely to accept a higher offer.

According to influential technology analyst Henry Blodget: "Yahoo! has now indicated that it won't refuse to sell the company - thus forcing Microsoft to decide whether to pursue a hostile takeover."
Microsoft chief executive Steve Ballmer met Yahoo!'s largest shareholder, Capital Research and Management, last week as part of a charm offensive to win over investors in the company.

Sell Yahoo to high bidder, shareholder group says

SAN FRANCISCO, Feb 10 (Reuters) - A dissident group of Yahoo Inc (YHOO.O: Quote, Profile, Research) shareholders said on Sunday it had launched a campaign to sell their shares as a block, breaking ranks with Yahoo as it faces an unsolicited takeover bid from Microsoft Corp (MSFT.O: Quote, Profile, Research).
Eric Jackson, leader of an outspoken group of 100 current and former Yahoo employees that own 2.1 million shares and call themselves "Yahoo Plan B," said his group was prepared to negotiate separately with Microsoft or any other bidder.
"We have no desire to see Yahoo! continue independently with the current board and management team in place. We believe that is a recipe for a $17 stock price," Jackson wrote on his blog site, which can be found at
"Therefore, we will band together as a group and agree to sell our Yahoo! shares to the highest bidder," Jackson wrote.
Jackson called on other investors to join the block. The 2.1 million shares he said he and his group own is a tiny fraction of the roughly 1.4 billion Yahoo shares outstanding.
But his group is the first among Yahoo shareholders to speak out publicly against the company's expected rejection of Microsoft's offer.
Jackson was the star of Yahoo's annual meeting last June, where he led a move to challenge the direction of the company.
In the meeting's most memorable moment, Jackson accused then Chairman and Chief Executive Terry Semel of mismanaging the company and failing to do more to revive its share price

How far will Microsoft go to overcome Yahoo's rejection?

Yahoo's decision to spurn Microsoft's $44.6 billion acquisition offer will test how far the Redmond company is willing to go to secure the giant deal.
The decision, reported over the weekend and expected to be made official Monday, leaves Microsoft with a series of options and challenges. These are some of them, based in part on recent interviews with lawyers and other experts in corporate acquisitions.
ANOTHER BID: Microsoft could treat Yahoo's rejection as a negotiating tactic, an effort to induce a larger bid.
Microsoft would then need to decide whether to boost its offer beyond the original $31 per share, which was a 62 percent premium over Yahoo's previous closing price. The Wall Street Journal, citing an anonymous source, reported that Yahoo's board feels the offer "massively undervalues" the company and that it is "unlikely to consider any offer below $40 per share."
Microsoft had no comment on Yahoo's decision as of Sunday.
But Chris Liddell, Microsoft's chief financial officer, told analysts last week that the size of the original offer was meant to make it "as easy as possible" for Yahoo to accept it.
The situation is complicated by a decline in Microsoft's share price after the Yahoo bid. Microsoft said its offer of $31 per share would be paid half in cash and half in its own stock. But Microsoft's share price has since fallen more than 12 percent, reflecting negative feelings about the Yahoo bid among some investors. As a result, Microsoft would need to give more shares than originally expected just to attain the acquisition price it proposed.
TENDER OFFER: Microsoft's original bid was limited to a public expression of interest and proposed terms -- a "bear hug," as it's known in the mergers and acquisitions trade. That left it to the Yahoo board to decide how to proceed.
With the offer rejected, Microsoft could go further and launch a formal hostile bid, making a "tender offer" to buy shares from Yahoo's shareholders. However, Yahoo could try to thwart such a move with a "poison pill" defense mechanism -- selling shares to other investors at a discount to increase the number of shares outstanding and make a takeover by Microsoft more difficult.
BOARD MANEUVER: Microsoft could nominate its own slate of directors for the Yahoo board, to push the deal through. Microsoft Chief Executive Steve Ballmer may have been hinting at this possibility in his Jan. 31 letter to Yahoo CEO Jerry Yang and the Yahoo board, saying that the company "reserves the right to pursue all necessary steps to ensure that Yahoo!'s shareholders are provided with the opportunity to realize the value inherent in our proposal."
Yahoo's latest proxy statement set March 14 as the deadline for shareholders to nominate directors.
"It is a date I'm sure both parties are acutely aware of," said Doug Cogen, co-chairman of the mergers and acquisitions group at law firm Fenwick & West in San Francisco.
LET IT GO? Microsoft could, of course, decide to throw in the towel and give up the Yahoo bid. This is unlikely, given the merit that Microsoft executives say they see in the deal, and the fact that it has persisted in its pursuit despite past rejections from the Yahoo board.
Microsoft "probably expected this move," said Matt Rosoff, industry analyst at Kirkland-based research firm Directions on Microsoft. "They hit the ball over the net once and now they're going to hit it back again. It's going to go back and forth a few times."
REGULATORY REVIEW: If Microsoft ultimately reaches an agreement to acquire Yahoo, the next big hurdle would be antitrust reviews in the U.S. and Europe. Microsoft has said it expects the proposed deal to pass regulatory muster in time for the deal to close in the second half of this year.
But all the variables make it difficult to predict how regulators would view the deal, said Glenn Manishin, an antitrust lawyer at the law firm Duane Morris in Washington, D.C. The biggest challenges may involve "markets that aren't at the core of what people have considered this transaction to be about," Manishin said.
"I don't suspect that, in the final analysis, it will be deemed to be competitive or unlawful in the core search or advertising markets. Maybe the best way to compete with what some perceive to be a dominant player in the online advertising market would be to permit the acquisition of the No. 2 competitor by someone who has a lot of money but hasn't yet been successful in competing in those markets."
However, he said, there could be antitrust challenges in e-mail, instant-messaging and mobile-phone software and services -- areas where Microsoft and Yahoo are strong.
THE INTEGRATION CHALLENGE: If Microsoft gets past all those hurdles, it would then face the challenge of combining Yahoo's operations and employees with its own. An acrimonious takeover battle could make that even more difficult.
Ballmer addressed the challenge at a Microsoft event last week, saying that the company is putting a high priority on a successful integration with Yahoo, if the bid reaches that point.
"If we do that well ... that will be a very good thing for customers, our shareholders, etc.," the Microsoft chief executive said, "and if we do that poorly, we probably shouldn't have tried this acquisition."

Yahoo Board Escapes MS Bear Hug: Yahoo Jitsu!

The Yahoo board of directors will formally reject Microsoft's $31 bid, according to a report today in the WSJ. The Microsoft letter (i-banker parlance, a bear hug) sent to the Yahoo board.
The Jiu Jitsu move that Yahoo used to slip out of Microsoft's arms? The board stated the 62 percent preimum "massively undervalues" Yahoo and doesn't cover the risk that regulators here and abroad might body slam the deal.
Rumors are rife that Yahoo may tag out in search, tapping its former tag team partner, Google, to crush Microsoft. Google, combined with Yahoo's share of searches, would become the de facto search engine on the Internet, achieving Eric Schmidt's stated goal:
In martial arts and grappling, the bear hug is a dominant position, allowing great control of an opponent. The more brutal world of corporate M&A offers many escape routes.
The Yahoo board concluded Microsoft was trying to"steal" the company in its current weakened position. So the MMA match between the two Web 1.0 titans promises to go several more rounds. Yahoo's has popped posion pills, designed to prevent a hostile takeover. A poison pill is the corporate M&A equivalent of steroids, making Yahoo a tougher opponent to take down.
Of course, the rejection of Microsoft's bid is no surprise to Search Engine Watch readers, who saw the Yahoo News report undervaluing Microsoft's offer.
In any case, we're in for a bloodbath: Yahoo "begs" (Google, save us!), Microsoft borrows (to buy Yahoo) and Google "steals" search from their #2 competitor? Or it may just be an inverse bear hug by the Yahoo board, designed to squeeze more money out of Microsoft.
For industry experts on the Microhoo deal, check out Kevin Newcomb's roundup of industry experts who manage the largest global paid search campaigns and organic search strategies here, here, and here.

Apple MacBook Air

I'M DEEPLY torn. When Steve Jobs first slid the supermodel-thin MacBook Air out of a manila envelope during his MacWorld keynote unveiling, I wanted to buy it. It was exactly what I was looking for - an ultra-light portable with a decent-sized screen and full-sized keyboard. However, after 24 hours away from the effects of Steve's reality distortion field (a well-documented phenomenon), I had time to ponder its shortcomings and desire quickly gave way to doubt.
No sooner had the words "how much are those Apple shares now?" popped into my head, than the web was buzzing with critical scorn heaped on the Air for its lack of optical drive, integrated battery, non-upgradeable memory, limited hard drive capacity, lack of ports and not-so-latest processor. Could I really be happy with a notebook that had so many compromises or would I carry it in frustration wishing the left-brain had been more assertive during the purchasing?
I decided practicality had to win out and the regular MacBook would be my next computing mule ... until I held the Air in my hands. The dilemma was back and this time emotion was involved.
Few would argue that the Air is the sexiest notebook ever built - it's the Brad Pitt and Angelina Jolie of laptops. It appeals to both sexes equally and elicits the same gasps of shock, marvel and delight from either gender. Think I'm exaggerating? Just watch anyone's reaction upon seeing the Air for the first time in the metal. Average Joe would be able to resist stroking its anodised aluminium surface only for about two nanoseconds.
Yet the question of function and practicality keeps coming back. The MacBook Air comes in two flavours: a 1.6GHz Core 2 Duo entry-level model and a 1.8GHz version with a 64GB flash memory "solid state" hard drive that costs an extra $1889. The faster CPU and flash drive are available as separate options on the base specification ($430 for the former and a whopping $1409 for the latter).
An Air exclusive is the multi-touch trackpad that uses gestures to perform common tasks such as zooming in on a picture, rotate an image, enlarge text on a web page and jump back in a browser. It is a system that iPhone and iPod Touch users will be familiar with and is an absolute gem on the enlarged trackpad of the Air.
The lack of an optical drive will be a deal-breaker for some but, like a BMW, anything is available for a price. A purpose-built external SuperDrive DVD burner (that connects through USB) is a $139 option and also extra are the Ethernet adaptor dongle thingy and the Apple remote (a standard inclusion on the cheaper MacBooks).

The iPhone: The right device at the right time

Two research reports released last week indicate that Apple released the iPhone just in time to benefit from a major consumer shift toward “converged devices” – in other words, smart phones and wireless handhelds.
One report comes from Canalys, a technology market research company based in the U.K. Canalys says that shipments of converged devices rose 72 percent year-over-year in the fourth quarter of 2007.
According to the Canalys data, Nokia owns the worldwide smart mobile device market with a 52.9 percent share. RIM comes in second with 11.4 percent. But Apple edged out Motorola for third with 6.5 percent -- a noteworthy achievement considering the iPhone was available for just six months of the year and in just four countries.
“When you consider that it launched part way through the year, with limited operator and country coverage, and essentially just one product, Apple has shown very clearly that it can make a difference and has sent a wake-up call to the markets leaders,” Canalys senior analyst Pete Cunningham says in the report.
In the U.S. Canalys estimates that the iPhone took 28 percent of the converged device market in Q4 of 2007, putting it in second place behind RIM (41 percent) but way ahead of Palm (9 percent).
What’s remarkable about Canalys’ U.S. numbers is that the iPhone’s 28 percent share exceeds the combined share of all the Windows Mobile device vendors (21 percent). At least in the world of smart phones, the Mac OS has bested its Windows rival.
The other report is a survey from Rockville, Md.-based ChangeWave Research, which examined cellphone buying among 4,182 respondents.
“Research in Motion [maker of the Blackberry] and Apple appear to be the primary beneficiaries of the seismic shift toward more-advanced cell phone,” the ChangeWave report says. The iPhone ranks first among those planning to buy a cellphone in the next six months with 17 percent while RIM is a close second with 16 percent.
At least one Apple competitor, Motorola, appears to have suffered from the introduction of the iPhone last year. The percentage of those surveyed planning to buy a Motorola phone in the next six months has plunged from 33 percent in October 2006 to 11 percent in the latest survey. So much for the early criticism that Apple would struggle against the established cellphone makers.
Meanwhile, Apple’s partner AT&T appears to have gotten a boost from being the sole iPhone service provider in the U.S. Among respondents who plan to switch carriers in the next six months 25 percent named AT&T, a gain of 2 percentage points.
In the customer satisfaction portion of the survey, the iPhone had an extraordinary showing. Apple led the pack by a large margin with 72 percent of iPhone owners saying they were “very satisfied.” RIM was second with 55 percent and LG third with 41 percent. Palm was last with 30 percent.
The iPhone’s high customer satisfaction ranking reflects two other ChangeWave surveys covering Apple products. In a survey on operating system satisfaction, 81 percent of Mac OS X Leopard users were “very satisfied” versus 53 percent for Windows XP Home and 27 percent for Vista Home Premium.
Another survey released in December on PC purchasing habits showed 80 percent of recent Mac buyers “very satisfied,” with Dell a remote second at 61 percent.
Apple’s consistently high customer satisfaction ratings should pay off as time goes on, attracting more and more new customers while keeping existing customers loyal to the brand.
Was there any bad news in the reports? Yeah, a little. The ChangeWave survey showed a 3 percent drop in respondents planning to buy any cellphone in the next six months, from 26 percent to 23 percent. It looks like concerns about the economy may slow spending on cellphones over the next few months, and that’s likely to affect iPhone sales.

Apple planning iPhone and iPod touch price cuts?

9to5Mac has received word that Apple is planning on dropping the prices on the iPhone and iPod line within the next month or two - perhaps at the rumoured late February event. The price cut is said to be $100 on both the iPod touch and iPhone lines - and the 8GB iPod touch will apparently be dropped from the line-up just as the 4GB version of the iPhone was before it. If true, this means that the 16GB iPhone will be $399 - the current price for the 8GB version and the 32GB iPod touch will come in at $399 too. Following the same cost cut pattern, considering the difference in pricing, this means the UK could expect to see the 32GB iPod touch and 16GB iPhone both at £269. 9to5Mac predicts the price drops are in order to make way for "pricing space" for the 3G iPhone, expected this year.

When Google's content network lacks content

Just how much money does Google make from so-called "domain parkers" - those clever characters who populate countless web pages with nothing but advertising?
Judging from a recent legal attack on a small army of these clever characters, Eric Schmidt and his minions make far more than they'd like the world to know.
Earlier this week, the IDG News Service leaked word of a recent Florida court order laid down in response to a "typosquatting" lawsuit from mega-PC-manufacturer Dell Computer. Dell is suing sixteen companies you've never heard of, but the court order also involves a certain web giant based in Mountain View, California.
In October, Dell brought suit against sixteen domain registrars, claiming they're serving ads from more than 1,000 domains that infringe on Dell trademarks. According to court papers, these urls include addresses like "" and ""
"Typosquatting is a form of cyberquatting - which essentially involves registering variations on a trademark owned by an established company and brand so that you can drive traffic to your own site," says Jeffrey Glassman, a lawyer with the California firm Moldo, Davidson, Fraioli, Seror & Sestanovich, told The Reg.
This sort of typosquatting may or may not be illegal, says tech law blogger Eric Goldman. "We don't really have a whole lot of precedent on this, so it's hard to draw any legal inferences about it," he explains. "It's still a legal gray zone."
Then, late last month, a federal judge issued a "freeze order" that put the freeze on revenue collected by these Dell's adversaries - revenue that arrives by way of Google.
You see, these Dell-like domains belong to Google's AdSense network. Google populates these sites with ads, and every time someone clicks on one, Google gets a cut.
The freeze order orders Google to shuttle a portion of the defendants' revenue into an account for safe keeping. Each month, court papers say, the first million goes into the account, while the second million goes on to the defendants. Then, if revenues top $2m, half of what's left over goes into the account and the defendants get the other half.
That's sixteen defendants, and they're potentially raking in more than $2m a month.
When we contacted Google, a spokesman declined to talk about this case specifically, but he did half-answer a few of our questions about domain parking in general. Google insists that if you complain about typosquatting on its AdSense network, it will take action.
"Regarding typo-squatting, we take trademark violations very seriously," the spokesman said, via email. "Our trademark policy specifically prohibits the use of trademarked terms. When we find or are made aware of trademark violations we take immediate action including removing ads from our system and sites from the AdSense network."
Has Dell chosen legal action over a simple complaint to Google? It's hard to tell. Dell wouldn't talk to us at all. Like Google, it doesn't normally comment on pending litigation.

WidgetBucks - Worth Considering As An Adsense Alternative

The CPM of the google adsense unit that was below my posts has recently fallen to below the $1.50CPM threshold I have set for banners, so I have removed it.
Removing poorly performing Adsense units quickly is very important, as they will drag down the earnings of your better Adsense units due to Google’s Smart Pricing. This is where Google will serve higher valued ads on sites with the best earnings potential, so removing poorly performing ads will in most cases mean that you will make more money overall, even though you are displaying fewer banners, as your better positioned ads will get higher value ads served and thus higher CPCs.
Choosing a replacement for the Adsense unit though has been difficult. I’ve already maxed out on my Tribal Fusion ads, so I needed to find another ad network. After some experimentation with some awful networks like AdBrite, I have settled on WidgetBucks. Their ads are performing so well, I might even switch out some of my Tribal Fusion ads as I think WidgetBucks will make me more money.

Approval is required to join. I don’t think WidgetBucks have a min traffic requirement; I think the gating is more about maintaining quality and keeping the dubious sites at bay. Once accepted setup is very quick and a $25 bonus is paid, which is a nice touch.
WidgetBucks serve both pay-per-click ads and CPM ads. Creating code is very simple and rather than having to scroll through dozens of pages, new code can be created in around 4 clicks. The ads can be targetted to specific product categories e.g. Technology, or you can allow WidgetBucks to serve contextual ads to try and maximise earnings. MerchSense evaluates your editorial information daily, so, as your content changes, WidgetBucks will dynamically offer the highest-yielding products.
Not only are the payouts from ads very good, there’s also a decent referral program that pays 5% of the earnings from any referral for 12 months. Not quite lifetime earnings, but 5% is a decent amount, particularly if you hit the jackpot and refer a big site.
If you haven’t tried WidgetBucks and you have some poorly performing (<$2CPM) units on your site then I highly recommend giving WidgetBucks a trial.

8 Theories For AdSense Fluctuations

In brief: find another basket for your eggs
Recently, many web-publishers reported drastic drops in their Google AdSense earnings and offered up many theories as to why that occurred. The problem was reported in web forums, on popular SEO blogs, and in the comments section of the last WebProNews article on the subject. After all that, we've narrowed it down to 8 possible explanations.
In other words, we're closer, but not there yet. It could be innocent, accidental, natural, or orchestrated, but the majority of you seem to be reporting steep (and for some of you, I mean steep) drops in AdSense earnings. The Search Engine Roundtable poll mentioned last time grew to 135 respondents, and the percentages stayed the same: 55% are reporting decreases in earnings.
It could also be that angry people speak the loudest, but many seem pretty sane in their reporting, saying earnings are declining despite level page views and click-through rates.
But we're going to err on the side of the smaller guy, assume you're getting screwed by the big guy, and propose the most possible and/or likely reasons for that. Included with this assumption is that all of you are on the up-and-up with great content, great SEO, great business savvy, and have done everything right but still find yourselves victims of the corporate machine.
See how nice that is? Here goes.
It's the economy, stupid.
This explanation wins the Occam's Razor Award—i.e., the simplest explanation is the correct one. As the economy enters a slow-down period, many advertisers are trimming their budgets, decreasing how much they spend on branding-related advertising and redirecting those funds to more direct response ads, which would include AdWords.
One commentator noted the golden rule of the economy: It will fluctuate. This could be what's happening, and that fluctuation could be swelling on the political side of the content fence as Presidential primaries take center stage on the Information Highway.
Advice: Look into AdWords and improve organic SEO. Otherwise, wait it out like the rest of the economy.
Google got stingy with the AdSense real estate
During an increased focus on conversions rather than clicks and intensified efforts to combat click fraud, Google made AdSense ads more difficult to click. A few have reported that since "the clickable area" of ads was decreased, CTRs have also decreased. At the end of the day, the AdSense drop many publishers are experiencing is a direct result of Google's offensive against accidental clicks.
Google is another good company gone public
This is a more cynical, greed-driven, conspiracy explanation that may resonate with more distrustful element of the audience. You know how everything seems designed to make you pay more at the gas pump? Reports come out that $3.71 per gallon is the tipping point where Americans will drive less, oil is at record prices as companies collude on what to charge on a street-by-street level, and Exxon cites less supply while setting yet another quarterly profit record by pulling in $1,300 per second, and the oil profiteers in the White House hadn't seen any type of crisis on the horizon for the past 30 years.
Phew. Try to say all that in one breath. But the theory goes like that. Shareholders like profit.
So, between the third quarter 2007 and when the fourth quarter report came out last week, Google's stock plummeted from $747 to just a little over $500. No doubt they saw this coming well in advance of their earnings report and looked for ways of tightening things up earnings-wise. It's especially troubling for Google because not only do they control two-thirds of the search market and 75% of the search ad spend, they report consistent growth that would impress anybody, that would be calls for champagne for any company, except the analysts who expect more of them.
If so, it should make you feel better that they missed estimates anyway.
But as a part of that plan to maximize earnings, Google found a way to decrease what they paid out to publishers while increasing what they took in from advertisers. This would also help offset Google's recent moves against made-for-AdSense sites developed expressly for domain tasting, an action that costs Google a reported $3 million.
Admittedly though, when you're dealing in billions, a few million isn't much – unless you're trying to make estimates. But Google also reported a 30% increase in AdSense clicks over the fourth quarter 2006, and a 9% increase since the third quarter 2007. So over all, clicks are up.
Even though clicks are up, and revenues seem down for publishers, Google still reported a 34% increase in AdSense revenues over the same period last year and a 12% increase quarter-over-quarter. This is interesting because Google's traffic acquisition cost—the portion of revenue shared with Google AdSense partners—went up only 1%.
The short version: Clicks are up, revenues are up, amount shared with publishers is level.
Search clicks are better
One proposal says that Google is lowering the estimated value of content clicks in order to protect the value of search clicks, as advertisers shift from network ads to search ads in a slower economy.
You're being better-dealed
Not much explanation needed on this one. Google's making more money from big-name advertisers and big-name websites. Smart-pricing is hitting you hardest because you can't compete with international brands and websites with millions of page views. It also serves as a decent explanation for why Google is sharing the same amount of money with publishers while increasing clicks and revenues.
No fixed advertising contract means no fixed advertising pay-out
One theory is that Google is making deals with others (bigger, higher-budgeted companies) for fixed compensation while slowly increasing their take among AdSense publishers, who have little-to-no control over CPC, or even context. If you don't have a very specific deal with Google, they can pretty much do what they want.
Ad blindness and Firefox adoption is hurting you
This is an interesting theory because it is simple and plausible. People are ignoring ads at a higher rate, and this has been evidenced by eye-tracking studies, especially when the ads appear in the places they expect them to appear. But also there are ad-blocking programs available via the Firefox browser (and other browsers) that block ads altogether.
It may be that your visitors just can't see your ads, either by choice or by software.
Google needs a real competitor
Not only does Google run two-thirds of search, but also controls 75% of the search advertising spend. Yahoo gives them a run for their money in display ads, but nobody is even close to knocking the king off the hill.
If you were in that position, what would you do? Would you make it easier for publishers to make money while you made less? When there's no alternative, you can pretty much do what you want.
What we're left with
We're left with what we're always left with: the same as when webmasters lose ranking in the SERPs. If there's a sudden drop in search ranking, businesses are on the line, most often because the business is relying too much on Google. We could theorize all day, but if your entire business model is based on what Google can do for you, then your entire business model has a good chance of being sunk.
All your eggs + one basket = fail.

Yahoo set for bid response

Directors (that’s CEO Jerry Yang) has voted to reject Microsoft’s $31 a share bid as inadequate.
Seems as though they would take nothing under $40.
The point now is, how did Yahoo!’s stock get so low that a company takeover could be within the means for Microsoft, News Corp., or even a private equity consortium to pull off?
I have to blame some of this predicament on the same Board of Directors.
Although the Board is not entirely constituted now as it has been, they erringly countenanced the hiring and regime of Terry Semel.
Terry was and is an old-style Hollywood dealmaker. He didn’t seem to understand the critical imperative of pouncing on available, revenue-enhancing Internet properties such as YouTube and Facebook.
People such as Terry are more oriented toward due diligence when these acquisition opportunities come up. That is advisable in the cinematic world, but not in the world we Internet types inhabit.
He never got that, and the Board and founders (Jerry Yang and David Filo) frankly let him waddle around too long.
Meanwhile, the broadband content deals Semel did pursue and pull off were not transformative for a company competing against the freewheeling, risk-taking culture of Google.
So the takeaway here is that a calcified company such as Yahoo! has been losing on so many fronts to a non-calcified, non-bureaucratic company such as Google.
And the circumstances of all this misprioritization, analysis-paralysis and all is that the stock has dipped to a place of takeover vulnerability.
I don’t see MSFT bidding at $40, no. $35 maybe, but no higher.

Yahoo set for bid response

YAHOO’s board of directors is this weekend preparing its first response to Microsoft’s $44.6 billion (£22.9 billion) hostile bid for the Silicon Valley icon. Analysts expect an announcement as early as this week and are betting Microsoft will eventually clinch the deal – at a higher price.
Yahoo directors began talks on Friday. If no decision is reached this weekend they are expected to meet again on Wednesday. Yahoo is reported to have hired Moelis & Company, a mergers-and-acquisitions boutique, to help Goldman Sachs and Lehman Brothers evaluate its options.
Analysts believe Yahoo will either begin negotiating final terms of an amicable sale to Microsoft or draw up plans for a break-up that would hand control of its search engine and a big piece of its advertising to rival Google. FINANCE ministers and central bankers from the G7 countries, meeting in Tokyo, warned of slower growth but said the American economy should escape recession. The G7 – America, Britain, Japan, Germany, France, Italy and Canada – warned of the risks from financial-market turbulence and the US housing slump. “In all our economies, to varying degrees, growth is expected to slow somewhat in the short term, reflecting wider global economic and financial developments,” the G7 communiqué said.
The G7 urged banks to fully disclose losses and take action to shore up their balance sheets. The Financial Stability Forum of regulators and central bankers, which reported to the G7, warned of further credit writedowns and a tightening of bank lending. But it cautioned against a rush to regulate.
Bumper dividend at BE
NUCLEAR power group British Energy is this week expected to report a hefty additional dividend as it benefits from high electricity prices. Analysts expect it to pay up to 15p extra, on top of the interim dividend of 13.6p. Shareholders will also be anxious for updates on BE’s discussions with other groups about new nuclear plants.
Parker takes nonexec crown
SIR JOHN PARKER, chairman of National Grid, has been named Britain’s top nonexecutive director at the NonExecutive Director Awards. The event was sponsored by KBC Peel Hunt, The Sunday Times, 3i, the NonExecutive Directors Association, Pinsent Masons, University of Southampton and Alvarez & Marsal.

Yahoo set for bid response

YAHOO’s board of directors is this weekend preparing its first response to Microsoft’s $44.6 billion (£22.9 billion) hostile bid for the Silicon Valley icon. Analysts expect an announcement as early as this week and are betting Microsoft will eventually clinch the deal – at a higher price.
Yahoo directors began talks on Friday. If no decision is reached this weekend they are expected to meet again on Wednesday. Yahoo is reported to have hired Moelis & Company, a mergers-and-acquisitions boutique, to help Goldman Sachs and Lehman Brothers evaluate its options.
Analysts believe Yahoo will either begin negotiating final terms of an amicable sale to Microsoft or draw up plans for a break-up that would hand control of its search engine and a big piece of its advertising to rival Google. FINANCE ministers and central bankers from the G7 countries, meeting in Tokyo, warned of slower growth but said the American economy should escape recession. The G7 – America, Britain, Japan, Germany, France, Italy and Canada – warned of the risks from financial-market turbulence and the US housing slump. “In all our economies, to varying degrees, growth is expected to slow somewhat in the short term, reflecting wider global economic and financial developments,” the G7 communiqué said.
The G7 urged banks to fully disclose losses and take action to shore up their balance sheets. The Financial Stability Forum of regulators and central bankers, which reported to the G7, warned of further credit writedowns and a tightening of bank lending. But it cautioned against a rush to regulate.
Bumper dividend at BE
NUCLEAR power group British Energy is this week expected to report a hefty additional dividend as it benefits from high electricity prices. Analysts expect it to pay up to 15p extra, on top of the interim dividend of 13.6p. Shareholders will also be anxious for updates on BE’s discussions with other groups about new nuclear plants.
Parker takes nonexec crown
SIR JOHN PARKER, chairman of National Grid, has been named Britain’s top nonexecutive director at the NonExecutive Director Awards. The event was sponsored by KBC Peel Hunt, The Sunday Times, 3i, the NonExecutive Directors Association, Pinsent Masons, University of Southampton and Alvarez & Marsal.

Will Microsoft go DEFCON 1 on Yahoo?

According to the Wall Street Journal [a paid publication], it looks like the Yahoo! (NASDAQ: YHOO) board will reject Microsoft's $31 buyout offer. Basically, the company wants at least $40 (hey, why not?).
So, now the ball's in Microsoft's (NASDAQ: MSFT) court. What to do? There are several options.
Of course, Microsoft can up its bid. But why? After all, who can really compete against Microsoft? In other words, why should Microsoft bid against itself?
The #2 option: go hostile. This means filing a tender offer and waging proxy fight. In other words, shareholders will be able to make up their own minds. And, given that the Yahoo! shareholder base has changed significantly (that is, with lots of money-grubbing hedge funds), I think there will be lots of pressure to get a deal done.
True, the hostile approach may be scary to Yahoo! employees. But, I have to assume they also realize that Microsoft is going to gut headcount anyway.
In fact, I think a hostile approach can actually get to a negotiation -- and perhaps a small boost in the offer.
Something else: speed is important. With the election year, it's not easy to predict who will be in the White House -- and how a new regulatory regime may impact the antitrust implications of a Microsoft-Yahoo! combo.
Tom Taulli is the author of various books, including The Complete M&A Handbook and The Edgar Online Guide to Decoding Financial Statements. He also operates

Microsoft deal doesn't feel right except for Yahoo stock owners

"There's something wrong with us!" Bill Murray's character John Winger told his fellow soldiers in the film "Stripes." "Something very, very wrong with us!"Sometimes we have a premonition of things about to go very, very wrong.With Britney Spears, the eerie feeling surfaced with her impulsive marriage to a childhood friend in a Las Vegas chapel in 2004, a union that lasted all of 55 hours.
Hmmm, doesn't seem quite right, we thought. But she'll get it together.At Enron Corp., investor stomachs turned queasy when then-Chief Executive Jeffrey Skilling made a surprise resignation from the nation's seventh-largest company in 2001.Strange that he'd do that now, said shareholders and energy industry experts. If Enron is in no financial peril, like he said, why leave?Or consider my local Starbucks Corp. store, which recently began to offer hot breakfast sandwiches, (available in selected stores around the country) with a full morning staff on hand to extol the virtues of the sandwich and offer free samples.Several days later, Howard Schultz, who has returned as CEO, stated publicly that shareholders must expect near-term financial strain from steps he's taking to resuscitate the company. Those steps include removing hot breakfast sandwiches from the menu.Farewell, breakfast sandwiches, we hardly knew ye. Hmmm, customers wondered, what's up with Starbucks?Something seemed very, very wrong when I conducted interviews with executives of Daimler-Benz and Chrysler Corp. as they announced their ill-fated 1998 merger. There was an ominous feel to the oddly effusive America Online Inc. and Time Warner Inc. merger announcement in 2000 as well.Those deals just didn't seem right, but, then again, we thought maybe they knew something we didn't.More recently, Microsoft Corp.'s unsolicited bid for Yahoo Inc. has an unsettling smell of desperation. The software powerhouse is understandably obsessed with cutting into Google Inc.'s increasing lead in online advertising and Web search engines.But merging a stumbling Yahoo, despite its reach of 500 million users, with the slowing Microsoft, whose own Web initiates haven't excelled as it hoped, does not create a Google.Historically, merging two companies that aren't No. 1 in a field doesn't result in a combined company that overtakes the leader. That's especially true in technology, where innovation rather than bulk spurs growth. Often, the existing problems of the combined firms multiply once they're put under one roof.But, then again, maybe Microsoft CEO Steve Ballmer knows something we don't know. I will say this: For long-suffering Yahoo shareholders, this is a deal that's very, very right for them. Seriously right. Their Christmas may have arrived a month late, but it is welcome nonetheless.

Yahoo Board to Spurn $44B Microsoft Bid

Yahoo Inc.'s board will reject Microsoft Corp.'s $44.6 billion takeover bid after concluding the unsolicited offer undervalues the slumping Internet pioneer, a person familiar with the situation said Saturday.
The decision could provoke a showdown between two of the world's most prominent technology companies with Internet search leader Google Inc. looming in the background. Leery of Microsoft expanding its turf on the Internet, Google already has offered to help Yahoo avert a takeover and urged antitrust regulators to take a hard look at the proposed deal.
If the world's largest software maker wants Yahoo badly enough, Microsoft could try to override Yahoo's board by taking its offer _ originally valued at $31 per share _ directly to the shareholders. Pursuing that risky route probably will require Microsoft to attempt to oust Yahoo's current 10-member board.
Alternatively, Microsoft could sweeten its bid. Many analysts believe Microsoft is prepared to offer as much as $35 per share for Yahoo, which still boasts one of the Internet's largest audiences and most powerful advertising vehicles despite a prolonged slump that has hammered its stock.
Yahoo's board reached the decision after exploring a wide variety of alternatives during the past week, according to the person who spoke to The Associated Press. The person didn't want to be identified because the reasons for Yahoo's rebuff won't be officially spelled out until Monday morning.
Microsoft and Yahoo declined to comment Saturday on the decision, first reported by The Wall Street Journal on its Web site.
Yahoo's board concluded Microsoft's offer is inadequate even though the company couldn't find any other potential bidders willing to offer a higher price.
Without other suitors on the horizon, Yahoo has had little choice but to turn a cold shoulder toward Microsoft if the board hopes to fulfill its responsibility to fetch the highest price possible for the company, said technology investment banker Ken Marlin.
"You would expect Yahoo's board to reject Microsoft at first," Marlin said. "If they didn't, they would be accused of malfeasance."
But by spurning Microsoft, Yahoo risks further alienating shareholders already upset about management missteps that have led to five consecutive quarters of declining profits.
The downturn caused Yahoo's stock price to plummet by more than 40 percent, erasing about $20 billion in shareholder wealth, in the three months leading up to Microsoft's bid.
Seizing on an opportunity to expand its clout on the Internet, Microsoft dangled a takeover offer that was 62 percent above Yahoo's stock price of just $19.18 when the bid was announced Feb. 1. Yahoo shares ended the past week at $29.20.
Led by company co-founder and board member Jerry Yang, Yahoo now will be under intense pressure to lay out a strategy that will prevent its stock price from collapsing again. What's more, Yang and the rest of the management team must convince Wall Street that they can boost Yahoo's market value beyond Microsoft's offer.
Yahoo's shares traded at $31 as recently as November, but have eroded steadily amid concerns about the slowing economy and frustration with the slow pace of a turnaround that Yang promised last June when he replaced former movie studio mogul Terry Semel as Yahoo's chief executive officer.
This isn't the first time that Yahoo has spurned Microsoft. The Redmond, Wash.-based company offered $40 per share to buy Yahoo a year ago only to be shooed away by Semel, according to a person familiar with the matter. The person didn't want to be identified because that bid was never made public.
Yahoo now may want that Microsoft to raise its price to at least $40 per share again. That would force Microsoft to raise its current offer by about $12 billion _ a high price that might alarm its own shareholders.
Microsoft's stock price already has slid 12 percent since the company announced its Yahoo bid, reflecting concerns about the deal bogging down amid potential management distractions, sagging employee morale and other headaches that frequently arise when two big companies are combined.
Although it isn't involved directly in the deal, Google is the main reason Yahoo is being pursued by Microsoft.
Yahoo has struggled largely because it hasn't been able to target online ads as effectively as Google.
Microsoft believes Yahoo's brand, engineers, audience and services will provide the company with valuable weapons in its so far unsuccessful attempt to narrow Google's huge lead in the lucrative Internet search and advertising markets.
As it examined ways to thwart Microsoft, Yahoo considered an advertising partnership with Google _ an alliance long favored by analysts who believe it would boost the profits of both companies. It was unclear Saturday if Yahoo's plans for boosting its stock price include a Google partnership, which would probably face antitrust issues.
A Microsoft takeover of Yahoo would also be scrutinized by antitrust regulators in the United States and Europe. The antitrust uncertainties could be cited as one of the reasons that Yahoo's board decided to spurn Microsoft.

Will Google benefit from kicking Yahoo's butt?

The Yahoo board of directors met telephonically on Friday to consider asking Microsoft for more money or, alternatively, doing a deal with Google. Given the way Silicon Valley works, I think the latter is more likely, but who knows?This would be funny because it's competition from Google, not from Microsoft, that has demolished Yahoo's business. Even funnier, Yahoo would be joining up with the company that already has a monopoly market share in search and search advertising, so this would reduce competition, rather than increasing it. Neither of these things matters, of course, because it's all about using Microsoft as a bogeyman. Ooooh, scarey.Yahoo might be trying to wangle a bit more cash out of Microsoft, but that's far from certain: Yahoo would have got $50 billion last year, and next year it might be lucky to get $25 billion, unless its performance is transformed. As Om Malik points out:
A 62 percent premium to Yahoo's stock price is as good an offer as Yahoo can hope for. The company's turnaround efforts, the Peanut Butter Manifesto, and Jerry Yang's 100-Day Plan are all delusions of (lost) grandeur. After all, the stock's value had been sliced in half long before Steve Ballmer showed up on the door, dragging bags of money behind him.
Yahoo should have teamed up with eBay when it had a chance, but a $44.5 billion offer is pretty darn good. Yahoo is simply delusional if it thinks it can find someone more desperate than Steve Ballmer & Co. Whether it makes sense for Microsoft to pay so much for a company that can't execute (and seems to be rather short of grown-ups) is another matter. There doesn't seem much argument for the deal, beyond the point that no matter how badly Yahoo has done in search and advertising, Microsoft has done even worse.The only new thing I've seen on that front is a post on Todd Bishop's blog at the Seattle Post-Intelligencer. It seems Ballmer took questions during Microsoft's latest Minority Student Day in Redmond. According to the post, Ballmer said:
What our goal is, is to provide, what I would say, great innovation and great competition, particularly in the search and advertising area, to Google. ... There's already about $40 billion a year sold in search advertising, and in our desire to be a world leader in Internet search and Internet advertising, it helps us a lot to acquire Yahoo.
What are the challenges? There's a group of 13,000-plus people who work at Yahoo, and they have their goals and their ambitions and their desires and their thoughts and their software and their everything else, and we have to kind of mate up their goals, desires and ambitions with the goals, desires and ambitions of people here, and that's generally referred to as the integration process. If we do that well ... that will be a very good thing for customers, our shareholders, etc., and if we do that poorly, we probably shouldn't have tried this acquisition, so really doing that well is a high priority, and we're really focused in on it -- assuming that Yahoo accepts our bid, which has yet to happen. As I said a week ago, it's the execution that matters.... and that's the big unknown.

Chris Liddell fingered for Yahoo takeover deal

Reuters in Seattle has an interesting article on New Zealander and former rugby player Chris Liddell, who became Microsoft's chief financial officer in 2005. It explains why Microsoft is now behaving unlike the Microsoft of the previous 30 years. It says:
In about three years, he has helped transform Microsoft from a miser that socked away money for a rainy day into a spendthrift, and he has successfully challenged the philosophy that Microsoft, given enough time and resources, should build its own technology to take on all comers.Liddell has completed nearly 50 deals since joining the company in May 2005. His boldest move yet, Microsoft's $41.9 billion offer to buy Yahoo Inc would use up nearly all of a legendary cash stockpile Liddell inherited.Other companies such as IBM, Oracle, Cisco and Google already buy dozens of companies. In fact, IBM claimed to be "the most acquisitive company in the technology industry, based on volume of transactions" ... and that was before it spent $5 billion buying Cognos.Whether it makes financial sense for Microsoft to offer Yahoo about 50% than it's worth is, of course, another issue.Another thought: Having up to $64 billion in cash made Microsoft an obvious target for chancers keen to make a quick buck without actually doing any useful work, such as patent trolls and the European Commission. Will that change if Microsoft has no money in the bank?

Yahoo’s Bad Investment: Itself

It took a $44.6 billion bear-hug from Microsoft to highlight one of Yahoo’s biggest mistakes of the past three years: spending $4.6 billion on two big share buyback programs.
In the past three years, the Internet titan has spent that cash to buy its shares at prices far above the current level. The average price of Yahoo’s stock since March 24, 2005–the start of its first, $3 billion buyback program–is a little more than $30 a share. For much of the past year, the stock has been below that, often well below. Though the stock has hovered around $29 since the Microsoft bid, it was only Jan. 30 when the shares hit a 52-week low of $19.05.
WSJ colleagues Karen Richardson and Gregory Zuckerman recently traced the declining fortunes of share buybacks. Companies, of course, buy back shares for several reasons: because they see their stock as a good value, to signal their confidence in their prospects, to buy out restive shareholders and to boost earnings per share by reducing the amount of public stock in the market. By the last criterion, Yahoo hasn’t been very successful. Per-share earnings in 2008 are projected at 42 cents, according to Capital IQ. That would be the lowest since 2004, and far below the $1.27 a share earned in 2005.
And if the motivation was to quell restless shareholders, it hasn’t been too successful there either–witness that recent 52-week low.
What else might have Yahoo been doing with that cash? Perhaps it could have been making acquisitions or investing more in R&D that can boost its position in the Search and Ad wars with Google.
Consider “Project Apex,” a project designed to enable electronic ads to appear on everything from home computers to mobile phones. Yahoo announced a few weeks ago that Project Apex would be more expensive than it expected. Bear Stearns analyst Robert Peck believes the project’s increased costs pressed on Yahoo’s stock price and spurred Microsoft’s bid.
Next, consider other factors. With Microsoft’s bear-hug still gripping the company, Yahoo’s stakes in Chinese Internet concern, Yahoo Japan and South Korea’s Gmarket add up to $14.3 billion, according to Citigroup Global Markets and data. Some now are speculating that Yahoo might have to sell those stakes in order to be well-capitalized enough to persuade shareholders it should, and can, stay independent.
As Yahoo scrambles, it is worth asking how much more secure its position would be if it hadn’t used all that cash buying itself up?
Trackback URL:
Save & Share:
-->Share on Facebook It took a $44.6 billion bear-hug from Microsoft to highlight one of Yahoo’s biggest mistakes of the past three years: spending $4.6 billion on two big share buyback programs.
In the past three years, the Internet titan has spent that cash to buy its shares at prices far above the current level. The average price of […]
--> Digg this -->Email This Print
Read more: Microsoft-Yahoo, Deal Dissection, Deal Watch


Report offensive comments to
Or maybe Yahoo would have invested that $4.6B internally in a bunch of low-return projects that didn’t generate any value. Management seems to have a track-record of doing that. Do we really want to assume that had we given them another $4.6B to invest, they would have done it well?
Comment by Dan Miller - February 7, 2008 at 4:18 pm
Believe me, I am not the smartest man around, but why in heaven sake would MSFT even consider buying Yahoo,that is dead money, huge mistake, you can put in down on paper and it looks good,but however you try and window dress this purchase, it will go down as your biggest blunder. Thanks for listening. George (the greek) Neofotis
Comment by George Neofotis - February 7, 2008 at 9:03 pm
Yahoo offers excellent strategic value.Going it alone it is a distant second to Google.With Microsoft it eliminates eventually falling into third place.It will be the greatest bargain of the M&A history even if microsoft ups the ante to $39.00.
Comment by renothecat - February 7, 2008 at 10:25 pm
$39!!! You’re on crack pal. It would be AT BEST $32-33.50The premium is enormous. Yahoo was headed to the TEENS and if MSFT pulls the plug. It WILL get there much faster. Like Oracle has just done….MSFT will do the same here. MSFT can easily offer to buy all outstanding shares from institutions and funds and investors. They will easily grab the majority then force BODs hand. They will look very stupid at this point. Hell even MSFT could let the deal fall through then offer to buy for LESS $$$.All in all….this is a DONE DEAL. NO ONE has the cash MSFT does…to the tune of $1BILLION a month
Comment by Mark, Valencia, Ca - February 8, 2008 at 12:38 am
MSFT bids on Yahoo.
A recent blog on this topic was at least humorous.This blog was posted at the announcement. The blogger was using a previous blog.
A Blog entry regarding MSFT buying Yahoo:
“Somebody said MSFT is just rearranging the deck chairs on the USS Vistanic. I don’t know if that’s true, but I still predict that MSFT will be the GM & F of the 21st century.
MSFT should be a reliable toaster or utility stock, but it is opening the door to AAPL & other competitors.”
My comment:That door may be open but MSFT is walking hand in hand with Apple through that door. I feel one of Microsoft’s best purchases was Apple stock at $5. I heard that. Not sure or of the price. Steve Jobs approached Bill Gates. Apple needed money to develop the iPod. MSFT not only sells Office for Apple. It is a part owner of Apple. MSFT makes money on iPods, iPhones, Apple computers, then selling the Office software. No wonder Bill Gates is so wealthy.
The MSFT and Yahoo game will be interesting. Then we, investors, are here to be entertained. Making money is second.
My next computer will be an Apple. Never thought i would say that. I am recommending my daughter Marin Lanier

Yahoo set to rebuff Microsoft bid as too low

Yahoo set to rebuff Microsoft bid as too low
unsolicited bid, now worth $42 billion, as too low, a source familiar with the situation told Reuters on Saturday -- the first clear signal the board might be prepared to negotiate and sell the Internet media giant.
The Wall Street Journal had quoted an unnamed source as saying Microsoft's offer of $31 per share was an attempt to "steal" the company and that Yahoo was unlikely to consider anything under $40 per share -- double its price in January.
At $40 per share, the value of the cash and stock deal would be worth $51.1 billion.
If completed, a merger of Microsoft and Yahoo would be the world's largest of two computer technology companies and create a formidable rival to Internet search and advertising leader Google Inc (GOOG.O: Quote, Profile, Research).
Yahoo has been considering options, including negotiating a higher price and striking a deal with Google to take over its search operations to keep Yahoo independent, the Journal said.
The newspaper reported Yahoo's board met on Friday.
No alternate bidder has emerged and Wall Street has been betting that the likeliest outcome was for Yahoo board's to negotiate for a higher price from Microsoft.
"Are they really seriously about nothing less than $40 or is it a negotiating tactic to try to get a richer price?" Global Crown Capital analyst Martin Pyykkonen said.

Should Yahoo shareholders hold or sell?

If you own Yahoo stock, should you sell now or hold out for a potentially higher price?
Microsoft is offering a combination of cash and its own stock for all of Yahoo's shares. The value of the offer can change because of the stock component.
It has fallen from $31 per share when the offer was announced Feb. 1 to about $29.
That's still a hefty premium - 51 percent - from where Yahoo was trading before the announcement ($19.18).
If you sell your Yahoo stock today, you can cash in on that premium and reinvest in something else. But you run the risk that a higher offer will surface.
If you wait, you might make a little more money but run the risk that regulators block the deal or that Microsoft walks away. Yahoo's stock would probably tank if the deal fell through.
If your shares are not in a retirement account, you'll also have to weigh the tax impact of taking the bird in hand versus waiting for two in the bush.
To help shareholders weigh the choices, here are some questions and answers:
Q: What is Microsoft offering?
A: For each share of Yahoo, Microsoft offered to pay either $31 in cash, or roughly 0.95 of a share of Microsoft, which also was worth $31 per share initially.
In the aggregate, Microsoft offered to pay half in cash and half in stock.
Shareholders could choose to receive all cash or all Microsoft stock, but there's no guarantee they'd get what they asked for.
What usually happens is that the acquiring company pro-rates stock and cash depending on demand for the two options.
If Microsoft stock rose above $31 per share, almost everybody would choose stock. Microsoft would pro-rate the payout and everyone would receive roughly half in stock and half in cash, says Roy Behren, co-manager of the Merger Fund.
On the flip side, if Microsoft stock fell below $31, almost everybody would ask for cash and still end up getting roughly half cash and half stock.
Not knowing exactly what you would get is another risk to waiting. However, "You can be assured that you won't get less than half in cash if you choose all-cash or less than half in stock if you choose all stock," says John Orrico, co-manager of the Arbitrage Fund.
Q: How do I figure out how much the offer is worth?
A: First multiply Microsoft's current share price by 0.475 (half of the 0.95 exchange offer). Add that to $15.50 (half of the $31-per-share cash offer).
On Friday, Microsoft stock closed at $28.56, placing the value of the offer at roughly $29.07 per share.
Yahoo closed Friday at $29.20 per share.
Q: Why is Yahoo trading above the offer price?
A: Because investors think a higher offer is coming.
Normally a takeover target trades below the offer price while a deal is pending. That's because the deal could fall through and because of the time value of money.
Most big deals take at least six to 12 months to go through. If Yahoo is trading at $29 and the takeover offer is $29, a rational investor would sell Yahoo, reinvest the proceeds and earn a return on that money in the time it takes the deal to close.
"The only reason (Yahoo) trades at $29 is because the market anticipates something better is coming. Otherwise it would trade at $26," Orrico says.
Q: Is a higher offer coming?
A: Maybe, maybe not.
It's possible that another company, often referred to as a white knight in merger scenarios, could offer a higher price. But few have the money and motivation that Microsoft does.
Among the possible suitors, Comcast and Rupert Murdoch's News Corp. have said they're not interested, Google would face an even bigger antitrust hurdle than Microsoft and Time Warner is not likely to want another Web portal given its disastrous experience with AOL.
AT&T has the financial wherewithal and has a broadband partnership with Yahoo. But because it doesn't operate a Web portal, it doesn't have the same cost-saving opportunities that Microsoft has with its portal MSN.
Last year, a private-equity firm might have swooped in, but financing for debt-financed buyouts has become extremely difficult. In recent months, private-equity investors have abandoned proposed takeovers of SLM (better known as Sallie Mae), United Rentals and Harman International, causing their stocks to sink.
The company most likely to offer a higher price is Microsoft.
Many analysts say the $31-per-share offer was already generous. Larry Witt of Morningstar estimates that Yahoo, on its own, is worth only $26 per share.
Yet many predict Microsoft will raise its offer by a few bucks per share to win over directors, employees and shareholders and get the regulatory process moving.
Citigroup analysts say a higher offer by Microsoft is the most likely of five scenarios. "Our view can be approximately summarized as a 65 percent chance that a ... deal is completed, with the stock appreciating to the low to mid-$30s, and a 35 percent chance that a deal does not occur, with the stock retreating to the low to mid-$20s," they said in a research note.
UBS analysts predict Microsoft will raise its offer to $34 per share "to make the decision easier for (Yahoo's) board."
Orrico put the odds of a white knight coming in at less than 20 percent and the chance of a higher Microsoft offer at 50 percent.
Behren predicts that Microsoft "will provide additional value via extra cash, extra stock or price protection via some collar mechanism." A collar would fix the value of the deal as long as Microsoft stock stayed within a certain range. That would remove some risk for Yahoo shareholders but also some upside potential.
Q: Will antitrust regulators approve the deal?
A: Probably, but it won't be quick or easy.
Microsoft says it expects to close the deal in the second half of this year.
"We deem this timeline as particularly aggressive," Leland Westerfield of BMO Capital Markets says in a report. He says, "the Department of Justice and the European Commission will require a much lengthier period for evaluation than assumed by Microsoft."
Westerfield expects the deal to be completed, but no sooner than mid-2009. The Citigroup analysts also don't expect to see the deal completed before 2009.
If the case drags on, there's a risk that the new administration won't be as friendly to business as President Bush's has been.
Q: Should I wait around?
A: Many institutional shareholders, when a takeover is announced, immediately sell their stake in the target company. They "don't want to play the risk associated with capturing a tiny spread," meaning a possible improvement over the initial offer price, Orrico says.
These shares are often purchased by professional arbitrageurs, who make a living betting on the outcome of mergers.
"Anywhere from 10 to 60 percent of shares turn over to arbs and event-driven investors," Orrico says.
Westerfield advises shareholders to take the money and run. He says that "meaningful further upside (greater than 30 percent) from here would depend upon rival white knight counteroffers; we see none emerging." He does see Microsoft boosting its bid to $34 or $35, "but only after a protracted negotiation period. And while that range would suggest a (roughly) 20 percent upside from current price levels, we consider the downside exposure ... as an unfavorable risk-to-reward."
Orrico, on the other hand, says, "I'd stick it out." Yahoo shareholders "have the opportunity to both realize a premium for their shares and at the same time participate in any upside if Microsoft shares went up. I think there's a very high likelihood that Microsoft is successful. I don't see Yahoo trading down to (preoffer levels.) There is a chance Microsoft will increase the value of the proposal. It does seem the potential gain is bigger than the potential downside."
Q: What is the tax impact if I own Yahoo in a taxable account?
A: There might be a tax benefit to waiting.
If you sell now, you will realize a capital gain or loss. Your profit will be taxed as ordinary income (if you held Yahoo one year or less) or at the lower, long-term capital gains rate (if you have held it more than one year.)
However, in most takeovers that involve stock swaps, shareholders usually can defer capital gains tax by converting shares in the old company to shares in the new company. Shares exchanged for cash would still be taxable. If you have a sizable position, contact a tax adviser.