YAHOO EXPECTED TO REBUFF MICROSOFT THREAT OVER BID (NYT, PC)

By Nancy Tartaglione-Vialatte

Over the weekend, it was reported that Microsoft had sent a letter to the Yahoo board that set a three-week deadline for Yahoo to accept its buyout offer or Microsoft will take its case to Yahoo shareholders. The New York Times now reports that Yahoo is expected to respond by early Monday rejecting negotiations and explaining why Yahoo�s board believes the current offer price is too low.

Although Microsoft�s offer was initially valued at $31 a share, a drop in the price of Microsoft shares has reduced the offer to just over $29 a share.

Microsoft�s chief executive, Steven Ballmer, raised the pressure on Yahoo�s directors on Saturday in a letter warning that Microsoft would begin a proxy fight seeking to oust them if the two companies did not reach a negotiated deal in the next three weeks.

Senior executives from the companies have met twice since Microsoft made its offer public on Feb. 1, but they have not entered formal negotiations.

Yahoo rejected Microsoft�s offer, saying it �substantially undervalues� the company, and people close to the company suggest that Yahoo executives see no benefit to negotiating unless Microsoft raises its price, writes the NYT.

Yahoo�s board has asked Microsoft for information on antitrust issues and other matters but feels frustrated by Microsoft�s lack of response, according to people involved in the discussions.

For its part, Microsoft has insisted it sees no reason to raise its bid, because Yahoo has no competing offers.

�Basically Microsoft infers that Yahoo has no alternative deals in the offing, therefore there is no need to raise its price,� Michael Klausner, a Stanford Law School professor who specializes in corporate law and governance, told the NYT. �Microsoft still prefers a negotiated deal to a proxy fight.�

But waging a battle over board seats while offering a lower price for Yahoo could prove to be a gamble for Microsoft. Lately, many large Yahoo shareholders have indicated that they would favor a deal with Microsoft, at a slightly higher price. It is not clear that Yahoo shareholders would be happy with a deal at the current price, let alone at a price that is even lower, notes the Times.

Still, some experts in mergers and acquisitions say that without an alternative, Yahoo shareholders are likely to vote in favor of a Microsoft offer, even if it is lower.