In an open letter to Yahoo’s board of directors, Microsoft CEO Steve Ballmer has laid out an ultimatum: either accept Microsoft’s $31 per share offer to buy the company within three weeks, or Microsoft will take off the gloves and attempt a hostile takeover—potentially at a significantly reduced price.
Microsoft’s deadline is April 26.
Microsoft made its original, unsolicited bid to take over Yahoo at the start of February. Yahoo immediately refused the offer, saying it undervalued the company, and while the two companies have had talks in the intervening two months in Ballmer’s words, these have resulted in no meaningful negotiations.
Microsoft’s move is a classic element of a hostile takeover strategy to turn up the heat on a company’s management as it faces an annual shareholder meeting and board election. At the time it was made, Microsoft’s $31 per share offer would have represented a 62 percent premium over Yahoo’s market value, and would have been the biggest takeover in the high-tech industry. At current prices is still worth over $42 billion. But neither the Internet nor the market has stood still, and Microsoft cites declines in Yahoo’s market value—as well as its share of Internet traffic—have declined in the meantime. "By any fair measure, the large premium we offered in January is even more significant today," wrote Ballmer. "We believe that the majority of your shareholders share this assessment, even after reviewing your public disclosures relating to your future prospects.
Microsoft is still willing to pay $31 per share, but that offer now has an expiration date. If the companies haven’t reached a deal by then, Microsoft says it will take its takeover bid directly to Yahoo’s shareholders, and initiate a proxy battle whereby it will attempt to replace Yahoo’s current board of directors with new members who will approve the Microsoft takeover. And if Microsoft has to go directly to shareholders, Microsoft implies it will not be offering $31 per share. In other words, Microsoft’s message to Yahoo shareholders is "Take a good deal now, or take a worse one later. Your choice."
Yahoo has yet to respond to Ballmer’s letter. The company has been looking for other deals or partnerships with AOL/Time Warner, News Corporation, and Google in an effort to sidestep Microsoft’s unsolicited takeover attempt, and implemented so-called "golden parachute" provisions to offer generous severance terms to its employees if the company were to be sold. The company has also been trying to convince its investors that its revenue prospects for the next two years are considerably stronger than Microsoft’s gloomy forecast. Some industry watchers had speculated Yahoo was playing hardball to convince Microsoft to increase its bid, but Microsoft has consistently re-iterated it believes its offer is more than fair, and Ballmer’s letter to Yahoo’s board would seem to quash any hope Microsoft might pay a higher price for Yahoo.
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