With an added $30 million

Feb 19, 2008 17:48 GMT  ·  By

Microsoft saw Yahoo's negative answer coming a mile away. Sure, the Redmond company went up all the way to $31 per share for Yahoo, offering a premium of no less than 60% on the trading price of the Sunnyvale Internet giant on February 1, 2008, and offering an estimate $44.6 billion. But after almost two years of failed private negotiations, and repeated negative answers from Yahoo's Board of Directors, the Redmond company did see it coming. This is why, Microsoft Chief Executive Officer Steve Ballmer finished his official letter to Yahoo's Board of directors with a veiled threat: "depending on the nature of your response, Microsoft reserves the right to pursue all necessary steps to ensure that Yahoo!'s shareholders are provided with the opportunity to realize the value inherent in our proposal."

Yahoo is by all means a bleeding company, losing audience, search engine market share, profits and preparing to cut no less than 1,000 employees. And yet their response to Microsoft was that $44.6 billion was an undervaluation...

"On February 1, 2008, Microsoft made an unsolicited proposal to acquire your company. As much has been reported in the press recently, I wanted to reach out to you personally to let you know why your Board of Directors, after a careful review by Yahoo!'s management along with our financial and legal advisors, believes that Microsoft's proposal substantially undervalues Yahoo! and is not in the best interests of our stockholders. Most importantly, I want you to know that your Board is continuously evaluating all of Yahoo!'s strategic options in the context of the rapidly evolving industry environment, and we remain committed to pursuing initiatives that maximize value for all our stockholders," stated Yahoo CEO Jerry Yang.

Microsoft is not going away because of a half-no from Yahoo, who left suspecting enough room for a more sweet deal. Perhaps in the range of $35 to $40 per share. But the Redmond company failed to up the stakes. Microsoft executives, including Bill Gates, referred to the initial offer as fair enough and indicated that they were not ready to offer more money. And now, after dropping the $44.6 billion bomb, Microsoft is circling its Yahoo prey, ready to jump at the Sunnyvale Internet giant's jugular and deliver the final blow with just $30 million.

It will cost Microsoft no more than $30 million to get a foot into the door at Yahoo, by nominating a slate of new and favorable directors on the company's board by March 13. The Sunnyvale Internet Giant doesn't have a staggered board. This means that this year all the directors will be up for nomination. A proxy fight would effectively get Microsoft's people on the Yahoo Board of Directors. With just $30 million, the Redmond company might yet convince Yahoo shareholders to accept its $44.6 billion cash and stock offer, and not a billion more.