Yahoo announced Monday it is rejecting Microsoft's multibillion-dollar buyout offer, citing that it undervalues the company.
The announcement had largely been expected, as reports filtered out over the weekend such a decision had been made by Yahoo's board of directors.
"Yahoo's board of directors has carefully reviewed Microsoft's unsolicited proposal with Yahoo's management team and financial and legal advisers and has unanimously concluded that the proposal is not in the best interests of Yahoo and our stockholders," the company said in a statement Monday.
"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 company further noted.
Yahoo said its board will continue to evaluate its strategic options and pursue a path to "maximise value for all stockholders."
Microsoft, which on February 1 offered a cash/stock deal initially valued at US$44.6 billion, is likely to already have contingency plans, such as creating a friendlier board of directors, said proxy solicitors.
Yahoo's annual nomination process for board elections is set to start Wednesday and run through March 14, according to a Securities and Exchange Commission filing. Each year, all 10 of Yahoo's board seats are up for grabs.
Microsoft may already be eyeing those seats.
"If they haven't done it already, they're in the process of assembling an appropriate slate," said Bruce Goldfarb, a veteran proxy solicitor. "It's fair to assume they will run for board seats, and it won't take them long to fill the slate. We're talking Microsoft here. They have resources and access to countless, high-quality candidates to be a director."
Should Microsoft move forward in launching a proxy fight, it's difficult to say whether it will stake its flag early in the four-week window or wait closer to March 14. Timing is based on the state of negotiations, as well as the personalities who are pushing for a merger, Goldfarb said.
"By launching it early, it says, 'We're serious and ready to go. The pressure is on, and we can always pull back, but know we are there,'" Goldfarb said, adding, "Personality is always a factor in a proxy fight decision. It has a strong effect on how a decision is made."
Should Microsoft launch a hostile bid for Yahoo, one proxy solicitor said, it's likely Yahoo will go to the Department of Justice and lodge complaints over antitrust issues related to a merged company. In the current regulatory environment, Microsoft may surmise that its merger proposal will not be blocked. But Microsoft is also aware that the situation could change after national elections this fall, noted this proxy solicitor who requested anonymity.
Similar measures were taken by PeopleSoft, which nearly five years ago found itself the takeover target of a hostile bid by Oracle. Although the Department of Justice stepped in and filed a lawsuit to block the merger, the agency was ultimately overruled by a federal judge in San Francisco. The 18-month saga eventually ended in late 2004, when PeopleSoft accepted Oracle's offer valued at US$10.3 billion.
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