Microsoft issues ultimatum to Yahoo - deal or face hostile takeover

Software giant Microsoft has set internet group Yahoo an ultimatum in their takeover tug-of-war. If an agreement is not reached in the next three weeks, Microsoft will launch a hostile takeover bid. This was the threat made in a letter sent by Microsoft boss Steve Ballmer to the Yahoo board on Saturday. Yahoo has rejected the offer, made a good two months ago and originally worth just under $45bn, around £22.5bn, as being too low.

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If negotiations fail, Microsoft plans to take its offer directly to Yahoo shareholders. In his letter, Ballmer warns that should this happen, Microsoft's offer may be even lower. In view of the poor economic situation and falling share prices, speculation that the offer price may be reduced has already been circulating.

If the matter is not settled, Microsoft also plans to place its own representatives onto the Yahoo board to exert further pressure. To date, Microsoft has been pushing for a consensual solution to avoid a lengthy and potentially expensive takeover battle, which could also adversely affect the eventual merger. Ballmer says in his letter to the Yahoo board, which Microsoft has published, that what little discussion has so far taken place has not been meaningful. Ballmer describes the current offer as "generous" and stresses that in Microsoft's estimation, this view is shared by most Yahoo shareholders. Over the last few weeks Yahoo has made intensive efforts to persuade investors that the company has more future value as an independent company.

The letter from Ballmer, who is sometimes said to have a somewhat brutish manner, is fairly sharp in its formulation. He argues that Yahoo's market share for web searches has dropped over the past few weeks and that the general economic situation has worsened. Yahoo is expected to release first quarter results on 22nd April – speculation within the industry and on Wall Street is that the results may be poor.

When the bid was tabled two months ago, Microsoft's offer, valued at $31 per share, represented a premium of 62 per cent over the then Yahoo share price. "The large premium we offered in January is even more significant today," states Ballmer. The value of the deal has also fallen somewhat because part of Microsoft's offer to Yahoo shareholders is made up of its own shares, the price of which has since dropped. Industry estimates currently value it at around $40bn. Yahoo is already under pressure from some of its shareholders to accept Microsoft's offer. In contrast, others have indicated that a higher offer price would be required to induce them to enter negotiations.

Microsoft hopes that the Yahoo takeover will enable it to challenge rival Google's dominance in online searches and internet advertising.

(trk)