The WSJ ($) reports that Yahoo will reject MSFT’s offer, and will send a letter expressing that sentiment Monday. In the meantime, however, Yahoo has used the Journal to counter Microsoft’s $31 offer with a price of $40 a share.
After a series of meetings over the past week, Yahoo’s board determined that the $31 per share offer “massively undervalues” Yahoo, the person said. It also doesn’t account for the risks Yahoo would be taking by entering into an agreement that might be overturned by regulators…Yahoo’s board believes that Microsoft’s is trying to take advantage of the recent weakness in the company’s share price to “steal” the company. The decision to reject the offer signals that Yahoo’s board is digging in its heels for what could be a long takeover battle. The company is unlikely to consider any offer below $40 per share, the person said.
The “board determined that the offer massively undervalues Yahoo” language here is carefully choreographed. What the board really determined, of course, is that it can’t just reject Microsoft’s offer outright without being accused of violating its fiduciary duty–and that it should therefore try to hold Microsoft up for whatever it can get. The real message here is that Yahoo is willing to sell the company, and it has countered Microsoft’s offer with a price of $40 a share.
This is a smart move. It will be interesting to see whether Yahoo’s letter to Microsoft contains the same $40 language, as this would obviously make the message not a “rejection” of the bid but merely a price negotiation. We suspect Yahoo won’t put the $40 language in the letter, but in any event, they have just countered Microsoft’s bid.
So what will happen? The weakness of Yahoo’s position is that there are no other bidders even at $31 a share. So Microsoft’s likely counter-move here will be to say that it thinks its offer is “very attractive” and that the offer still stands. As Rupert Murdoch did when the Bancrofts rejected his bid for Dow Jones, Microsoft will then likely begin assessing the positions of some of Yahoo’s largest shareholders.
(The WSJ also says Yahoo is still mulling a Google search deal and “other options that would safeguard the company’s independence”, but as we’ve explained before, selling search to Google won’t fend off Microsoft.)
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