YAHOO! Inc, responding to Microsoft Corp's weekend threat of a proxy fight that could result in a lower takeover price, said yesterday the US$44.6 billion offer must be raised before any merger can take place.
"We will not allow you or anyone else to acquire the company for anything less than its full value," Yahoo! said in a letter to Microsoft Chief Executive Officer Steve Ballmer. On Saturday, Ballmer gave Yahoo! three weeks to reach a deal or face a proxy battle, Bloomberg News reported.
Yahoo!, owner of the most visited United States Website, said it isn't against a combination with Microsoft at a superior price and rejected Ballmer's charge that its business has deteriorated.
Yahoo! called Microsoft's threat "counterproductive" and is still evaluating alternatives to the bid, which was 62 percent higher than its stock price at the time of the offer.
"We are open to all alternatives that maximize stockholder value," CEO Jerry Yang and Chairman Roy Bostock wrote. "This includes a transaction with Microsoft if it represents a price that fully recognizes the value of Yahoo! on a standalone basis."
Shares in Yahoo!, based in Sunnyvale, California, fell 66 US cents to US$27.70 in early trading yesterday.
Microsoft, the world's biggest software company, made the US$31-a-share offer on January 31. Its shares have fallen since the bid, closing last week at US$29.16, valuing the half-cash, half- stock bid at about US$29.36 a share.
Cat-and-mouse
Ballmer's latest move shows Microsoft is in a rush to grab Yahoo! to take on Google, which dominates in Internet search, said analysts including Canaccord Adams's Colin Gillis.
"Microsoft doesn't want to spend a year negotiating, playing cat-and-mouse with the Yahoo! board and another year to close this transaction to get all the regulatory approvals," said New York-based Gillis, who advises investors to buy Yahoo! stock. "The Yahoo! board should come to the table a little more forthrightly."
Combining with Yahoo! would allow Redmond, Washington-based Microsoft to unite the second- and third-most popular search engines in the US. That would let them take on Google, which gets more than half the Internet queries in the country.
Google's purchase of DoubleClick Inc, whose software helps create and measure the effectiveness of Internet ads, may have forced Microsoft to accelerate plans as the deal gave its rival a bigger share of the display ad market, Gillis said.
Alternative tack
Microsoft and Yahoo! both trail the Mountain View, California- based company in Internet advertising sales.
Yahoo! rejected the bid on February 11, saying the price didn't reflect its value.
Making Microsoft go to Yahoo! investors "will have an undesirable impact on the value of your company from our perspective, which will be reflected in the terms of our proposal," Ballmer said in his statement on Saturday.
Yahoo said in February that it would seek alternatives that would appeal to shareholders. The firm has held talks with Time Warner Inc and News Corp about partnerships, insiders said in February.
"Yahoo! is in a tough spot," said Toan Tran, an analyst for Morningstar Investment Service in Chicago. "If it can stay independent, it believes it will be worth more in the future. The board and Yang are going to be under pressure."
Last month, Yahoo! pointed to its No. 2 position in Web search, its operations in Asia and the cost savings of the deal to show that Microsoft's offer is to low. Yahoo! said sales will climb at least 19 percent in each of the next two years.
In the two months since Microsoft's first advances, the US economy has deteriorated, affecting the business of Internet companies, Ballmer said.