Push coming to shove for Microsoft on Yahoo
Microsoft Corp.'s board of directors spent much of Wednesday debating whether to escalate the company’s high-stakes battle to win Yahoo Inc. or walk away, according to people familiar with the talks.
Microsoft Chief Executive Steve Ballmer has shown increasing willingness to abandon his pursuit of the Internet pioneer as Yahoo shareholders and management seek significantly more money, according to those people, who declined to be identified because they weren’t authorized to discuss the talks.
When it made the unsolicited bid for Yahoo three months ago, Microsoft counted on clinching the deal quickly. But it has encountered significant resistance from Yahoo, which has insisted that the offer was insufficient to insulate the company from the risks it would run in accepting it.
Much of the decision on whether to press forward resides with Ballmer. A growing number of Microsoft executives are urging him to find other ways to bolster the company’s online business. Even top executives don’t know which path Ballmer will choose, one person said.
If the Redmond, Wash.-based software company decides to press the acquisition, it could either try to win Yahoo’s approval by sweetening the offer, initially valued at $44.6 billion, or take the fight hostile by nominating a slate of candidates for Yahoo’s board.
The companies declined to comment Wednesday. Yahoo’s board is slated to meet Friday to again discuss its options, a person close to the Sunnyvale, Calif.-based company said.
Shares of Microsoft slipped 12 cents to $28.52. Yahoo shares rose a nickel to $27.41.
Microsoft had given Yahoo a Saturday deadline to enter into meaningful talks or face a withdrawal or proxy fight. As that date neared, frustrated Microsoft executives said they would announce their intentions this week.
Frustration also has mounted at Yahoo. The company’s future has become the subject of avid speculation by investors and the technology industry, both because one of the Internet’s top names was in play and because the result might determine whether Google Inc. gets a potentially serious challenge to its dominance.
Dropping the takeover bid was considered unthinkable by most investors just a week ago. But some analysts have since said that such a move would demonstrate Microsoft’s unwillingness to bid against itself. It also would punish Yahoo investors, who have not been aggressive in lobbying its board to accept the half-cash, half-stock offer of $31 a share -- which has declined to $29.06 a share in value as Microsoft’s stock fell.
If its strongest suitor were to walk away, analysts said, Yahoo’s shares would tumble. Should Yahoo’s shares fall back to their January levels, Microsoft would have a compelling case to bring to Yahoo investors if it nominates a slate of directors predisposed to negotiating a takeover deal.
Yanking the offer would give Yahoo Chief Executive Jerry Yang more time to come up with an alternative, including a deal to outsource some of its Web search advertising to Google or a roughly 20% investment from Time Warner Inc., which would merge its AOL unit into Yahoo. Talks with Time Warner are continuing, people briefed on those discussions said Wednesday.
“Ballmer should want us to think he’s crazy” and willing to walk, said one major investor whom Microsoft had pressured to advise Yahoo to settle for $31 a share. “But it would be a bad business decision.”
Raising the bid by a few dollars a share would make a deal far more likely. Analysts say major investors would probably support a deal around $35 a share. Microsoft has $29 billion in cash.
Microsoft executives have said publicly that they wouldn’t sweeten the offer, and they fear that by doing so they would reward Yahoo’s board for its refusal to negotiate, people close to Microsoft said.
Many investors predicted that Microsoft would steer a middle course and nominate a slate while continuing to quietly negotiate a price. Both sides have said they were willing to make a deal -- they just haven’t agreed on a price.
Menn reported from Los Angeles, Guynn from San Francisco.