Microsoft steps up pressure on Yahoo
Richard Waters / San Francisco April 07, 2008
May cut the value of its original offer if negotiations don't start soon
Microsoft ended its waiting game and moved to turn up the heat on Yahoo on Saturday, promising an all-out hostile takeover battle before the end of the month and hinting that it would cut the value of its offer if negotiations don't start soon.
The threats came in a letter from Steve Ballmer, chief executive officer, to Yahoo's board.
"The substantial premium reflected in our initial proposal anticipated a friendly transaction with you," Ballmer said. "If we are forced to take an offer directly to your shareholders, that action will have an undesirable impact on the value of your company from our perspective which will be reflected in the terms of our proposal."
A person close to Microsoft refused to confirm this meant the company would cut the value of its original offer but called Ballmer's letter "self-explanatory."
The value of Microsoft's cash-and-stock bid has already slipped from its original $31 a share as the software company's own stock has fallen, taking it to $29.36 a share at Friday's close. Speculation has been rife on Wall Street and in Silicon Valley that Microsoft would eventually sweeten its bid for Yahoo, at least taking it back to the original $31 and potentially lifting it higher in return for a negotiated deal.
In hostile takeover fights in the US, threats to cut the value of a bid are not unusual and are sometimes followed by eventual increases. Larry Ellison, chief executive officer of Oracle, has used the tactic in his own hostile deals, threatening to reduce his offer for BEA Systems last year and actually reducing his bid for PeopleSoft before eventually paying a higher premium for both companies.
In his letter, Ballmer argued that in the two months since Microsoft first revealed its bid, "the public equity markets and overall economic conditions have weakened considerably, both in general and for other Internet-focused companies in particular. At the same time, public indicators suggest that Yahoo!'s search and page view shares have declined. Finally, you have adopted new plans at the company that have made any change of control more costly."
In one sign of Wall Street's growing concern about the state of the internet advertising market on which Yahoo depends, shares in rival Google have fallen by 16 per cent over the past two months.
Some Microsoft investors and analysts have become impatient in recent weeks as the unsolicited offer for Yahoo has dragged on, fearing that the delay in any eventual deal will leave Microsoft even further behind Google and push anti-trust approval into a new US administration.
For the first time, the Microsoft CEO warned that the company would try to accelerate the process by taking his offer directly to Yahoo shareholders. While he did not spell out exactly what form this approach would take, it is likely to involve an exchange offer inviting them to sell their shares, as well as the start of a proxy fight for control of Yahoo's board.
"If we have not concluded an agreement within the next three weeks, we will be compelled to take our case directly to your shareholders, including the initiation of a proxy contest to elect an alternative slate of directors for the Yahoo! board.," Ballmer said.
