Microsoft pulls plug on bid for Yahoo

Published on Sunday 4 May 2008 20:34

MICROSOFT has walked away from its bid for internet search giant Yahoo after the firm rejected its increased offer of $47.5 billion (£24bn).

Yahoo dismissed Microsoft's $33-a-share offer after weekend talks, claiming that the bid "undervalued the company".

The internet firm, which recently reported a 9 per cent hike in revenues to $1.82bn, is understood to have refused to lower its demand below $37-a-share. That would have been nearly double Yahoo's share price of $19.18 at the time Microsoft declared its interest three months ago.

Microsoft, which had upped the stakes by $5bn in its latest bid, had initially offered $31 a share for Yahoo. Bill Gates's software dynasty, which was tipped to be considering a hostile takeover bid for the firm if its friendly approach was rejected, said in a statement that it would not be making a further offer for Yahoo.

Microsoft chief executive Steve Ballmer said: "Despite our best efforts, including raising our bid by roughly $5bn, Yahoo has not moved toward accepting our offer. We believe the economics demanded by Yahoo do not make sense for us, and it is in the best interests of Microsoft stockholders, employees and other stakeholders to withdraw our proposal."

Jerry Yang, co-founder and chief executive of Yahoo, said he was "pleased" with the level of support it had gained from some of the company's shareholders over its refusal to accept the bid.

He added: "With the distraction of Microsoft's unsolicited proposal now behind us, we will be able to focus all of our energies on executing the most important transition in our history so that we can maximise our potential to the benefit of our shareholders, employees, partners and users."

Yang founded the firm in 1994 with fellow Stanford University PhD student David Filo. The company floated on the stock exchange in 1996 with just 49 staff, which has now grown to 12,000.

Yang has projected that Yahoo's revenues will rise by 25 per cent in 2009 and 2010, helped by an expanded internet advertising network and more sophisticated tools to target consumers.

But some analysts have claimed that Yahoo has overplayed its hand in rejecting Microsoft's bid, saying they expect the firm's shares to fall as much as 30 per cent when Nasdaq trading resumes today. Laura Martin, a senior analyst at Soleil Securities, said she expected a number of shareholder lawsuits against Yahoo, claiming that the firm had put its employees ahead of shareholder value.

She said: "The Yahoo guys want too much money for their company. We think $33 a share is fair in the context of the weakening economic environment and adverse advertising trends."

Industry sources yesterday claimed that Yahoo would not be looking for further offers from other parties, but would stay focused on evaluating "strategic alternatives" for the company.

Yahoo has courted possible deals with Time Warner's AOL Internet division and News Corp's MySpace online social network, and tested a search advertising partnership with Google. A partnership with Google may be announced as early as this week, sources have claimed.

Microsoft wanted to buy Yahoo to gain a stronger foothold in its battle with Google, which is expanding rapidly into the software maker's own turf with new web-based applications. Ballmer admitted after the collapse of the bid that a deal with Yahoo would have accelerated the company's strategy, but said that Microsoft still had the tools to move forward.