14 DAY TRIAL // Well, it seems that the ball is now in Microsoft's court as Yahoo has just officially rejected the Redmond company's $44.6 billion marriage proposal. On February 1, 2008, Microsoft went public with an unsolicited acquisition proposal aimed at Yahoo. The Yahoo Board of Directors revealed that it would closely analyze the bid and then come up with an answer. But the fact of the matter is that Yahoo and Microsoft had been involved in private negotiations for over 18 months with the Sunnyvale Internet giants saying no after no, and the Redmond company simply not getting the point. By coming out in the open with the takeover bid, Microsoft Chief Executive Officer performed a maneuver known as a bear hug, the classic first step in a hostile acquisition.
"The Yahoo! Board of Directors has carefully reviewed Microsoft's unsolicited proposal with Yahoo!'s management team and financial and legal advisors and has unanimously concluded that the proposal is not in the best interests of Yahoo! and our stockholders," Yahoo stated via a press release. "After careful evaluation, the Board believes that Microsoft's proposal substantially undervalues Yahoo! including our global brand, large worldwide audience, significant recent investments in advertising platforms and future growth prospects, free cash flow and earnings potential, as well as our substantial unconsolidated investments. The Board of Directors is continually evaluating all of its strategic options in the context of the rapidly evolving industry environment and we remain committed to pursuing initiatives that maximize value for all stockholders."
Yahoo's decision seems to be influenced by the small price tag that Microsoft has placed on the Sunnyvale company. Reading between the lines it is clear that Yahoo has not said no, but only asked for more money. Reportedly, Yahoo is looking for Microsoft to pay approximately $60 billion instead of $44.6. The Redmond company has about $21 billion in cash reserves, so it proposed that the acquisition involve both cash and stock, and even in this case Microsoft would be in the position to go into debt.
At this point, Microsoft has of course a few options available. One of them would be to simply give up. Another would be to continue its hostile takeover by initiating a proxy fight to replace the current members of the Yahoo Board of Directors with its own supporters. And yet another would be to sweeten the deal, upping the offer to whatever Yahoo is demanding, making an offer simply impossible to refuse.
"There are now several steps we will both need to take in order to successfully move forward. We are very committed to this. A year ago the Yahoo! management team told us it wasn't really the right time to discuss an acquisition. We believed then in the benefits of combining the two companies and we believe now in those benefits more than ever. That is why we are making it public today so both sets of shareholders, employees and customers can understand the incredible opportunity in a combination of Microsoft and Yahoo," Ballmer stated back on February 1.