The Yahoo board of directors has officially rejected Microsoft’s $44.6 billion takeover offer today. After reviewing the offer over 10 days, Yahoo decided that the $31 per share offered by Microsoft “substantially undervalues the company.”
Bloomberg.com is reporting that Yahoo co-founder and chief executive officer, Jerry Yang e-mailed the company’s employees today outlining the board’s decision to reject Microsoft’s “unsolicited offer.” Yang says that Yahoo’s recent investments will help drive visitors to the company’s sites, and with online advertising expected to reach US81 billion by 2011, the company is positioned to see significant growth over the next few years.
In effect, the Yahoo board of directors is gambling that they can create a more valuable company that Microsoft could, if allowed to keep the reins. The official rejection statement by Yahoo pointed to its growing ad network and portfolio of acquired web sites to make their case. But some analysts are skeptical. For example, in the online advertising department, Google’s ad sales increased seven times faster than Yahoo’s in 2007, leaving Yahoo a very distant second, and increasing pressure on the company to further develop its advertising network.
Meanwhile, the word on Wall Street is that Microsoft is currently weighing its options, and considering if it should raise its offer or take the matter straight to Yahoo’s shareholders for a vote, bypassing the Company’s Board of Directors altogether. There were rumors last week that Microsoft may seek to overthrow the Yahoo board by appealing directly to shareholders if its offer was rejected.
The real challenge for Yahoo’s board now is to convince shareholders — many of which are company employees — that rejecting Microsoft’s offer was the right thing to do. After all, Microsoft was offering a 62% increase on the current price of the stock. Yahoo directors may face an uphill battle convincing shareholders not to sellout to Microsoft if “The Big M” begins pressuring individual investors to sell.
And there are signs that Microsoft may not give up so easily on the acquisition. A combined Microsoft and Yahoo Company would control more than 25% of the worldwide online advertising market, making them a potential challenger to the (thus far) unstoppable Google Inc.
And even though the company is not directly involved, the role Google plays in this transaction cannot be underestimated. Some analysts are suggesting that Yahoo could essentially “cut a deal” with Google to help them thwart off a hostile takeover by Microsoft. The New York Times is reporting that Google CEO Eric Schmidt has approached Yang about the possibility of a partnership between the two companies.
Yahoo is so far refusing to comment on the possibility of a partnership with Google.
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