Yahoo may be warming to a deal
SAN FRANCISCO — The big chill has thawed between Microsoft Corp. and Yahoo Inc.
The two camps began talking last weekend for the first time since Yahoo rejected Microsoft’s takeover bid last month and the conversation has continued this week, with senior executives meeting near Yahoo’s Sunnyvale, Calif., headquarters to give the software giant a chance to describe its proposal for combining the two companies, people familiar with the situation said Friday. They spoke anonymously because the talks are private.
“It’s now a regular conversation and before there was literally nothing going on,” one person said.
Both companies downplayed the significance of the talks, which they described as informal because they did not involve investment bankers or discussions of price. Microsoft’s bid initially was valued at $44.6 billion, or $31 a share.
Yahoo is simply keeping its options open: “Microsoft expressed interest. We heard them out,” another person said.
Yet analysts say the meeting signals that Yahoo’s stance has softened as it runs out of other options and faces growing shareholder unrest. Yahoo also may post disappointing quarterly earnings next month amid a worsening economic downturn, giving Microsoft more leverage. Without the Microsoft bid made six weeks ago, Yahoo shares probably would plunge, analysts say.
“I think this thing is in its final stages,” Sanford C. Bernstein & Co. analyst Jeffrey Lindsay said.
Yahoo rejected Microsoft, saying its offer undervalued the company. It has been searching for alternatives, exploring alliances with Time Warner Inc.’s AOL and Rupert Murdoch’s News Corp. Murdoch recently told investors that he did not plan to fight Microsoft for Yahoo. AOL on Thursday said it had agreed to buy social networking site Bebo in a move analysts said might make a combination with Yahoo less likely.
With the credit markets in turmoil, no other white knight has emerged. And Lindsay expects Yahoo to report another mediocre quarter. Quarterly revenue growth of 15% and annual revenue growth of 14% would make the stock worth $24 a share in a year’s time, well below Microsoft’s initial offer of $31 a share on Jan. 31, he said.
“It looks to us like Yahoo is out of options,” he said, “unless it pulls a rabbit out of a hat.”
Microsoft, whose overtures Yahoo has rebuffed in the past, has held firm, signaling that it would be willing to pursue a hostile takeover if necessary. It’s betting that the pair-up would create a formidable competitor to Mountain View, Calif.-based Google Inc., which dominates Internet search and online advertising. The Redmond, Wash.-based software giant is making aggressive moves to establish a larger online presence. A Yahoo acquisition would be its largest to date.
Yahoo recently extended the deadline for nominations to its board of directors in an effort to stave off a hostile takeover attempt by Microsoft.
This week’s talks between the two tech titans were first reported by CNet. Technology investment banker Ken Marlin said both sides came to the negotiating table because each had something to gain. Yahoo’s board of directors is angling to increase Microsoft’s bid. The value of the cash-and-stock offer has declined to less than $42 billion, or about $29 a share, as Microsoft’s share price has slipped 12%.
“When you see a deal that makes this much compelling, logical sense, you have to talk,” Marlin said. “Yahoo is trying to figure out if there is a set of circumstances under which Microsoft would increase its bid, and I think there are a set of circumstances under which Microsoft will raise that bid if Yahoo cooperates. Both are feeling each other out.”
Microsoft said Friday that it would buy San Francisco-based online advertising management company Rapt for an undisclosed sum, another in a series of acquisitions in the escalating arms race with Google, which this week took control of New York-based DoubleClick. In a regulatory filing Friday, Google said it would wind up paying $3.24 billion for the online ad service company. It originally said it would pay $3.1 billion for DoubleClick.
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