Monday, February 11, 2008

USA Today: Showdown Today Over Yahoo Vote on Microsoft's Bid

By Jefferson Graham and Jon Swartz, USA TODAY
Feb. 11, 2008

Ironfire Capital, an activist investment firm which last year helped organize shareholders to oust former Yahoo CEO Terry Semel, on Sunday said it would pressure Yahoo yhoo to accept Microsoft's msft unsolicited $44 billion takeover offer.

Yahoo's board is expected to reject that offer Monday, according to reports by the Associated Press and The Wall Street Journal quoting an unnamed source. USA TODAY could not confirm those reports.

Ironfire President Eric Jackson has organized a group of 100 dissident shareholders who collectively own more than 2 million shares and have agreed to vote as a bloc to support the buyout offer.

Jackson is reaching out to other Yahoo shareholders (, as well. "We'll tender our shares to the highest bidder," he says. "We don't trust Yahoo's board to negotiate on our behalf."

Jackson says it would be "ludicrous" to turn down Microsoft and says Yahoo's outlook has only worsened under CEO Jerry Yang, who replaced Semel in 2007.

"He runs it as if it's a private company, taking slow, incremental steps," he says. "He doesn't realize his approach is what lost the confidence of Wall Street and put Yahoo in play." Yahoo declined to comment.

Greg Sterling, an analyst with Sterling Market Intelligence, says a Yahoo rejection would be an attempt to get Microsoft to sweeten its offer, a prospect he calls "highly unlikely."

Microsoft has proposed paying $31 a share, a 62.7% premium over Yahoo's $19.05 closing price when Microsoft made the offer on Feb. 1. Yahoo stock closed Friday at $29.20.

"There is no credible alternative to this offer," says Sterling. "I don't see Yahoo retaining its independence unless someone else comes forward, and that hasn't happened."

The only way to appease shareholders, says Trip Chowdhry, an analyst at Global Equities Research, is for Yahoo to broker a deal with Google goog— perhaps letting Google handle searches on Yahoo's site in exchange for a split of the advertising revenue.

Investors have clamored for such an option as Google's share of search continues to rise, while Yahoo's slides.

"Yahoo is in limbo," says Chowdhry. "If they say no, shareholders will say, 'What are you doing, turning down a great offer?' "

A rejection would leave Microsoft with three options, says Rob Enderle, principal analyst at the Enderle Group in Silicon Valley. It could come back with a sweetened bid of $33 or $34 a share; it could drop its bid; or it could take hostile action and attempt to replace Yahoo's directors.

"By asking for an inflated price, it forces Microsoft to attempt a hostile takeover, putting at risk the most important asset: the people," says Roger Kay, president of market researcher Endpoint Technologies Associates.

Microsoft declined to comment.

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