Microsoft sets 3-week deadline in Yahoo takeover bid

Microsoft Corp. today gave Yahoo Inc. three weeks to accept a 2-month-old takeover offer worth about $40 billion, warning that it might otherwise try to win control of the Internet company by running a slate of directors that shareholders could elect to the board.

Microsoft went out of its way to quash speculation that the world’s biggest software company might raise the bid to seal a deal. Instead, it suggested that any hostile offer would come at a level below the initial bid’s 62% premium to Yahoo’s stock price.

“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,” Microsoft Chief Executive Steve Ballmer wrote in a letter sent to Yahoo’s board and released to the public.

Though managers from the two companies have met twice since Microsoft announced its offer in early February, Ballmer complained today that the Yahoo side hadn’t been authorized to negotiate. Instead, Yahoo has been trying to work out an alternative alliance with the likes of News Corp., AOL parent Time Warner Inc. and Google Inc.

Although Microsoft could launch a tender offer to buy shares directly from investors, Yahoo has a “poison pill” takeover defense that empowers the board to make such a campaign prohibitively expensive.

For that reason, executives involved in the fight have pointed to a proxy battle to elect directors as the most likely escalation if Yahoo doesn’t accept Microsoft’s bid or secure a comparable offer from another party.

Yahoo had no immediate response.

joseph.menn@latimes.com