Just one week after Microsoft made its surprising $44.6 billion cash and stock bid to purchase Yahoo, the venerable search engine rejected the bid. As if to add insult to injury, Yahoo’s board of directors agreed unanimously. Someone get me some popcorn; the fight is just beginning.
It’s true that Microsoft has been working on some kind of deal with Yahoo for the past 18 months now, so it shouldn’t seem like a shock. It’s also true that, before Microsoft’s offer, Yahoo’s stock had been dropping in price; at the original price of $31 per share, Microsoft was offering Yahoo stockholders a 62 percent premium over the recent closing price on the search engine’s stock. Yahoo has taken a beating for the last eight quarters; if the replacement of Terry Semel as CEO with co-founder Jerry Yang will save the company, we didn’t see any signs of it before Microsoft made its bid, at least in the price of Yahoo’s shares.
But that was then, and this is now. Thanks to the stock market’s reaction to Microsoft’s bid, the software giant’s stock has lost 13 percent, while Yahoo’s stock has shot way up, to as high as $29 per share. All of a sudden, Microsoft’s bid doesn’t look so good anymore. Once again adding insult to injury, the dip in price of Microsoft’s stock reduces the company’s value by about $42 billion – or approximately the price that Microsoft wants to tender for Yahoo.
Yahoo thinks that price is way too low. Here is how the search engine’s board of directors explained it in a company press release:
“After careful evaluation, the Board believes that Microsoft’s proposal substantially undervalues Yahoo! including our global brand, large worldwide audience, significant recent investments in advertising platforms and future growth prospects, free cash flow and earnings potential, as well as our substantial unconsolidated investments. The Board of Directors is continually evaluating all of its strategic options in the context of the rapidly evolving industry environment and we remain committed to pursuing initiatives that maximize value for all stockholders.”
That looks like a straightforward rejection, unless you read between the lines. Yahoo is saying that Microsoft’s bid undervalues the company. Does this imply that Yahoo would be open to a larger offer?
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