Microsoft May Increase Yahoo Bid, Maybe Not Enough

Microsoft Relevant Products/Services's board met Wednesday but failed to decide on the next step to acquire Yahoo, The Wall Street Journal reported. Sources told the newspaper that the board authorized CEO Steve Ballmer to pursue hostile takeover maneuvers or to walk away from the deal.

The board also appears to have authorized increasing the company's bid for Yahoo as high as $33 per share. Sources expect Redmond to make an announcement about its intentions by the end of the week.

Microsoft's current offer for Yahoo, a combination of stock and cash, was valued at about $29, based on the current value of Microsoft stock. Major Yahoo shareholders and management have indicated they want to see a price in the mid- to high 30s. So an offer at $33 falls short of investors' low end but may be too close to refuse.

The Right Price?

It would take more than $33 a share to pull off a friendly merger, said Tim Bajarin, principal analyst with Creative Strategies, in an e-mail. Yahoo CEO "Jerry Yang believes that Microsoft is undervaluing the company and most likely would not even entertain any new discussions about this unless Microsoft's offer is in the $36-$38 range," Bajarin said. "He and his staff believe that they can build greater value for their shareholders as a stand-alone company and unless Microsoft ups their price, I believe they will aggressively reject Microsoft's current offer."

The Journal reports that Ballmer's contradictory statements last week reflect a deep-seated indecision about the acquisition. In a single speech in Madrid on Friday, he indicated a willingness to walk away from the deal and threatened to take the bid to shareholders. Ballmer's closest associates are said to be clueless as to which way he is leaning.

Those who know him well say the indecision reflects his personality. The Journal cited friends and coworkers who say he can be impulsive and swayed by new information, but that he is also feeling the strain of the enormity of the deal and the imminent departure of Chairman Bill Gates.

Google, AOL Negotiations

As Microsoft ponders, Yahoo has become increasingly emboldened to pursue other options. A two-week test in which Yahoo carried advertising from Google apparently has been a success and the two companies may agree on a more substantial ad-sharing program. The Department of Justice has indicated it has antitrust concerns about that arrangement, so a broader deal might come with complications.

The New York Times reports, however, that Google and Yahoo believe they can structure a deal in a way that avoids extended government scrutiny. No deal is imminent, a source told the Times.

In addition, Yahoo is negotiating to combine with a flailing AOL. Parent Time Warner announced that AOL's revenues declined precipitously last quarter and more declines are expected in the second quarter as the company attempts to align its ad-sales platform.

Another option for Microsoft is to walk away from the deal, wait for Yahoo's stock price to fall and then come back with a bid that looks good in comparison. But that avenue has risks because it would mean a merger would be delayed at a time when Microsoft needs to make some headway against the Google winds. The break could also give Yahoo breathing room to work out a deal with AOL or another company that would preclude a Microsoft acquisition.

Source : http://www.toptechnews.com/news/Microsoft-Could-Increase-Yahoo-Bid/story.xhtml?story_id=1030081ONKHU