Yahoo rejects $45b bid by Microsoft

San Francisco: Yahoo! Inc., owner of the second most-used Internet search engine, rejected a $44.6 billion takeover offer from Microsoft as too low, setting up a potential showdown with the software maker.

After a 10-day review, the board decided the $31-per-share offer "substantially undervalues" the company, Sunnyvale, California-based Yahoo said yesterday in a statement. The directors didn't give a counter-proposal for the price.

Yahoo chief executive officer Jerry Yang will seek to persuade shareholders he can win a higher bid or craft a plan to reignite growth in online advertising sales. The market may double by 2011, and Yahoo has lost out to Google Inc. and social-networking sites such as News Corp's MySpace and Facebook Inc.

"Yahoo thinks they're worth more because of the plans they've implemented that have yet to come to fruition," said Daniel Taylor, an analyst at research firm Yankee Group in Boston. "The board is saying, "We think we can keep the company together and do far better with it than Microsoft ever will"."

In its three-paragraph statement, Yahoo said it is worth more because of its recent work to bolster its ad technology, future prospects and investment portfolio. The decision was unanimous and the board is "continually evaluating" options to boost the stock's value, Yahoo said.

The offer is 62 per cent more than Yahoo's stock price before the bid. The shares have climbed above the value of the cash-and- stock bid, showing shareholders expect a higher price. Microsoft plans to let investors choose cash or stock, at a ratio that will end up being about 50-50.

Yang has resisted letting go of the company he co-founded in 1995 as a student at Stanford University. He replaced Terry Semel as CEO in June and planned to craft a strategy to revitalise Yahoo. An upgraded search engine, new mobile phone software and plans to win sales in social networking have yet to gain investor confidence.

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possible options

The rejection leaves Microsoft weighing whether to raise the price, give up or take the offer straight to shareholders. A person familiar with the matter said last week that Microsoft may seek to oust Yahoo directors should they reject its offer.

Yahoo wants at least $40 a share, the Wall Street Journal reported over the weekend. Microsoft, the biggest software maker, could pay $40 for Yahoo or reach a deal for less, Standard & Poor's analyst Scott Kessler said in an interview. UBS AG said last week Microsoft may have to bid $34 to $37.

- Bloomberg