Yahoo spurns Microsoft

Yahoo! Inc.’s board of directors has rejected Microsoft Corp.’s recent offer to take over the company.

In a press release today, the board of directors of the Sunnyvale, Calif.-based-based search engine and portal vendor said it has reviewed Microsoft’s US$44 billion offer and concluded the bid “is not in the best interests of Yahoo! and our stockholders.”

On Feb. 1, Microsoft’s chief executive officer, Steven Ballmer, sent a letter to Yahoo!’s board stating the Redmond, Wash.-based software behemoth is willing to buy all Yahoo shares for US$31 each. At the time, the shares were trading at US$19.18, though they have since risen to nearly US$29.20. Ballmer said a merger of the companies would enable “synergies related to scale economics of the advertising platform,” which would “strengthen the value proposition to both advertisers and publishers.”

He also expressed a desire to discuss ways to “optimize the integration of our respective businesses” to create a company with “exceptional display and search advertising capabilities.”

But in its statement today, Yahoo! said its board believes the offer from Microsoft “substantially undervalues Yahoo! including our global brand, large worldwide audience, significant recent investments in advertising platforms and future growth prospects …” It stated the board “is continually evaluating all of its strategic options in the context of the rapidly evolving industry environment …”

Yahoo is still evaluating other options, including a search advertising partnership with Google Inc., according to a Wall Street Journal article on Saturday. It also may still be open to a longer negotiation with Microsoft: The Journal said it was told by an anonymous source that Yahoo would be unlikely to consider any offers below $40 per share.

If so, that would require Microsoft to raise its original offer by at least 29 per cent, or about US$13 billion. In other words, the cost for Microsoft to become a more credible rival to Google in the search and online advertising markets could start at about US$57.6 billion.

Google has been doing what it can to scuttle the Microsoft takeover bid, including playing the antitrust card. In a blog post, David Drummond, Yahoo!’s senior vice-president and chief legal officer, said the proposed merger “raises troubling questions” because Microsoft could dominate the instant messaging and e-mail market if it buys Yahoo, and the company has been found by regulators to have been anti-competitive in the past.

Drummond wrote: “Could a combination of the two take advantage of a PC software monopoly to unfairly limit the ability of consumers to freely access competitors’ email, IM, and web-based services? Policymakers around the world need to ask these questions — and consumers deserve satisfying answers.”

Microsoft shot back, issuing a statement saying that a combination of it and Yahoo merger would “create a more competitive marketplace.”

At press time, there was nothing to indicate any government authority, such as the U.S. Department of Justice’s Anti-Trust division, would block a merger.

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