Yahoo Lets Microsoft’s Deadline Pass Without Acting
Yahoo let Microsoft’s deadline for a response to its $40 billion-plus offer for the Sunnyvale Internet company pass without a word on Saturday, putting the ball back in Microsoft’s court.
Now, the stage is set for what could be a dramatic week.
Most analysts expect Microsoft to take its offer directly to shareholders at Yahoo’s annual meeting by proposing its own slate of directors for Yahoo’s board and letting stock owners decide then whether they want to accept Microsoft’s offer.
But there are other possibilities: Microsoft could withdraw its offer, at least for the time being, figuring it could always come back at Yahoo later. Or it could extend the deadline hoping to still hammer out a deal. And finally, Yahoo could announce it has a deal with another partner.
“We’ll see what next week brings,” Microsoft Chief Financial Officer Christopher Lidell said Friday.
If there’s no move from Yahoo, Lidell said, the company can either go directly to Yahoo shareholders or “walk away.”
The passing of the deadline prolongs a standoff that began Feb. 1 with Microsoft’s offer of $44.6 billion, or $31 a share, and Yahoo insisting it was worth far more. But the value of the half-cash, half-stock deal has actually fallen since it was first announced, as shares of both companies have declined. Yahoo shares closed Friday at $26.80; Microsoft’s at $29.83, down from $30.50 the day the deal was announced.
Yahoo has been scrambling without much success to find alternatives to a Microsoft deal, after postponing its annual meeting to give itself more time to weigh its options.
It has not set a date for the annual meeting and has until mid-July to hold one under the law in Delaware, where the company is incorporated. The deadline for nominating outside directors is now an unspecified date sometime later this year but before the meeting.
At this point, the issue is largely price. Yahoo is holding out for considerably more, and Microsoft has been holding firm at $31 a share.
Industry observers expect a deal to be struck, possibly for as much as $34 a share, but it’s possible that the issue won’t be resolved until the summer and Yahoo’s annual meeting.
Bernstein Research analyst Jeffrey Lindsay predicted in a note Friday that the acquisition would be over before the end of July at a “slightly improved price.”
“It will be a good, old-fashioned proxy fight,” Lindsay said in an interview, using the term for a battle for control of a corporate board. “At any time up to then, Yahoo can throw in the towel and negotiate.”
Microsoft has been growing impatient. The company’s chief executive, Steve Ballmer, complained in a letter to Yahoo’s board April 5 that despite “some limited interaction” between the companies, “there has been no meaningful negotiation to conclude an agreement.”
And Lidell said Thursday that Yahoo appeared to have “unrealistic expectations of value.”
As the next step, Microsoft would file to nominate its slate of directors. Yahoo will accept nominations up to 10 days after it announces its next annual meeting.
Yahoo spent weeks after Microsoft’s offer trying to come up with alternatives to the deal with Microsoft. Though its board and top executives explored possible deals with Google, America Online and Time Warner and News Corp., little concrete came of it. Yahoo did announce a test in which Google would handle Yahoo’s search advertising on a limited basis, but otherwise no other options have panned out.
Meanwhile, many Yahoo shareholders favored a sale at $31 or more.
Each company has been showing signs of age as the newer, nimbler Google dominates the lucrative business for Internet search advertising and begins to move into the area where Yahoo is strong: Internet display ads.
After years in denial, insiders say, Microsoft realized it had to catch up with Google before Google became the next Microsoft — so entrenched that no competitor could dislodge it.
The Internet advertising market “is increasingly dominated by one player,” Ballmer observed when he announced the offer for Yahoo on Feb. 1.
Both companies have been overtaken by Google, which had a better way of reaping revenue from ads placed on its search results pages. It rapidly outstripped Yahoo in online search advertising.
Yahoo has slumped badly in the past couple years. The day before Microsoft announced its offer, Yahoo closed at $19.18 a share — half what it sold for two years earlier.
Microsoft has projected $1 billion in cost savings from combining the companies’ two Internet operations. Analyst Sandeep Aggarwal of Collins Stewart in San Francisco, assigning a 90 percent probability that Microsoft will acquire Yahoo, said he thinks Microsoft will absorb “a large portion” of Yahoo’s employees.
In any case, such a deal would remove a storied corporate headquarters from Silicon Valley and end an entrepreneurial saga that began in 1994 when two Stanford University graduate students created the search and Web directory technology that made Yahoo an Internet giant.
The students, Jerry Yang and David Filo, soon were attracting hundreds of thousands of visitors. They incorporated the following year and began charging for advertising on Yahoo’s Web site.