GOOGLE/YAHOO ALLIANCE LIKELY WOULD NOT PASS REGULATORY SCRUTINY

As Yahoo explores ways to avoid being taken over by Microsoft, partnering in some way with Google keeps coming up; however, any deal between market leader Google and number two Yahoo would be looked at very closely by the Justice Department.

From Reuters:

Yahoo Inc's attempt to form an alliance with Google Inc to stave off Microsoft Corp could run into more trouble with antitrust regulators than Microsoft's unwelcome takeover bid.

While Yahoo is seeking a business partnership with Google -- unlike the outright merger that Microsoft wants -- legal experts say any deal between the world's two largest Internet search services will draw heavy scrutiny from U.S. and European competition regulators.

"The Justice Department would certainly want to take a serious look at that because it would mean that a firm that would want to take advertisements or to place advertisements (online) would have only one place to go," said Aaron Edlin, who teaches law and economics at the University of California at Berkeley.

Google held a 59.2 percent share of the U.S. Web search market in February, compared with Yahoo's 21.6 percent and Microsoft's 9.6 percent, according to research firm comScore.

MICROSOFT SETS APRIL 26 DEADLINE FOR YAHOO

Microsoft has set an April 26th deadline for Yahoo to approve Microsoft's takeover offer, now valued at $41 billion. If Yahoo does not accept the offer by the deadline, Microsoft has confirmed that it will pursue a hostile takeover at a lower price. Yahoo CEO Jerry Yang maintains that the $41 billion offer is simply too low.

From USA Today:

Yahoo (YHOO), facing a late April deadline from Microsoft (MSFT) to accept its $41 billion buyout offer, on Monday said that it does not oppose a deal with the world's largest software maker but wants a sweetened bid.

"We are not opposed to a transaction with Microsoft if it is in the best interests of our stockholders," CEO Jerry Yang and Chairman Roy Bostock wrote in a letter to Microsoft CEO Steve Ballmer. "Our position is simply that any transaction must be at a value that fully reflects the value of Yahoo, including any strategic benefits to Microsoft, and on terms that provide certainty to our stockholders."

In a letter to Yahoo on Saturday, Ballmer questioned why Yahoo continues to resist Microsoft's overtures absent a deal with another corporate suitor.

"Our proposal is the only alternative put forward that offers your shareholders full and fair value for their shares," Ballmer wrote. He argued that Microsoft's bid has grown stronger as the economy has weakened and that Yahoo shareholders support the takeover bid.

YAHOO MAY DELAY ANNUAL MEETING IN AN EFFORT TO THWART MICROSOFT TAKEOVER

The New York Times is reporting that Yahoo is considering several options in an effort to avoid being taken over by Microsoft, including delaying their annual shareholder meeting. The twists and turns of this deal get more interesting by the day.

From The New York Times:

Yahoo is considering several options, including a plan to postpone its annual meeting, people close to the company said on Tuesday.

Microsoft had been preparing to nominate a slate of directors to the board of Yahoo by next Thursday, the deadline for mounting a proxy contest. On Wednesday, Yahoo said it was extending the deadline for nominating directors until 10 days after the announcement of a date for its annual meeting — but gave no indication when that announcement might come.

Under the laws of Delaware, where Yahoo is incorporated, a public company cannot go more than 13 months without holding an annual meeting. Yahoo held its annual meeting last year on June 12.

The delay could leave room for Microsoft to reach a negotiated, friendly deal with Yahoo, which would be made much more difficult if Microsoft decided it needed to pursue the proxy contest. On the other hand, Yahoo’s continued maneuvering might just harden Microsoft’s resolve.

Yahoo’s investors could take the view that by postponing the meeting the company is disenfranchising its shareholders. The move could lead to lawsuits from Microsoft or from Yahoo shareholders.

PENSION FUNDS SUE YAHOO FOR TURNING DOWN MICROSOFT OFFER

Two pension funds have sued Yahoo and its Board of Directors claiming that they neglected their financial duty to shareholders in an attempt to avoid being taken over by Microsoft.

From USA Today:

The lawsuit was filed in Delaware Chancery Court on Thursday by lawyers representing Detroit's police and fire retirement system and general retirement system, as well as "all other similarly situated public shareholders."

According to the lawsuit, Yahoo's board is pursuing "value-destructive" third-party deals in an effort to fight off Redmond, Wash.-based Microsoft, which on Feb. 1 announced a takeover bid of $31 per share in cash and stock, a 62% premium over Yahoo's previous day's closing price.

"Yahoo's directors cannot 'just say no' indefinitely to legitimate acquisition offers," the lawsuit reads. "Likewise, Yahoo's directors cannot pursue transactions that do not require shareholder approval for the primary purpose of making Yahoo unattractive to Microsoft."

MICROSOFT EXPECTED TO WAGE PROXY FIGHT TO GAIN CONTROL OF YAHOO

Reports are surfacing that indicate that Microsoft will wage a proxy fight to gain control of Yahoo after its $31-per-share offer, valuing the company at the time at nearly $45 billion (now roughly $41 billion due to a decrease in Microsoft's stock price), was turned down.

What is a proxy fight? It is an effort to gain control of the Board of Directors to force change. In this case, Microsoft will urge shareholders to vote to elect new directors who are Microsoft-friendly, replacing the directors who voted down Microsoft's offer. If Microsoft is successful at ousting the current board and replacing them with one that favors Micrsoft, the $31-per-share offer, or one that is slightly higher, would almost certainly be accepted.

Most proxy fights are unsuccessful, but this one has a decent chance since all of Yahoo's directors are up for reelection at the same time, as opposed to having a staggered election in which only one or two board members can be replaced in a given year.

From The New York Times:

In an escalation of its fight for Yahoo, Microsoft will authorize a proxy fight at the Internet company this week, people briefed on the matter told DealBook.

The move, expected to cost about $20 million to $30 million, was Microsoft’s alternative to raising its $44.6 billion bid and is seen as a less expensive way to put pressure on Yahoo’s board. Yahoo rejected Microsoft’s original offer as undervalued.

Yahoo’s board is vulnerable in a proxy fight. Yahoo does not have a staggered board, so all of its directors are up for nomination this year. And, per its bylaws, in a contested election, directors are elected by a plurality of votes cast.

MORE MICROSOFT & YAHOO NEWS

Many analysts believe it will be very difficult for Yahoo to avoid the $31 per share Microsoft takeover bid as no new bids have emerged. Yahoo continues talks with other potential friendly partners including Rupert Murdoch's New Corp., which owns MySpace, and AOL, but deals with either seem like a long shot.

From The New York Times:

Can Yahoo avoid being gobbled up by Microsoft?

Many analysts say it is increasingly unlikely.

While some of those conversations [with potential white knight partners AOL and News Corp.] continue, no deal has emerged and a growing chorus of analysts and investors say it is improbable that anyone will come up with an offer that is more attractive to Yahoo shareholders than Microsoft’s, which was originally valued at $31 a share.

“It seems like Yahoo’s strategic options are relatively limited,” said Mark Mahaney, an analyst with Citigroup. “It is hard to see a scenario that could create as much value for shareholders as quickly as a Microsoft offer.”

From USA Today:

Microsoft CEO Steve Ballmer appears to be under rising pressure by big shareholders to make the $31-a-share opening offer stick. One reason: Paying $35 to $40 a share for Yahoo would drive down Microsoft's projected earnings through its 2011 fiscal year, says Robert Breza, tech stock analyst at RBC Capital Markets.

Yahoo on Monday rejected the $31-a-share offer, giving rise to speculation that it is courting a white-knight investor, such as AOL or News Corp. (NWS), to help it stay independent. A source briefed on the matter says talks to sell a 20% stake to media giant News Corp. are highly unlikely to result in anything. The source requested not to be named because talks are ongoing.

A tie-up with AOL would boost Yahoo's online advertising efforts but be expensive to consummate, says Shahid Khan, principal analyst at IBB Consulting Group. "It may distract Yahoo from getting its own act together," says Khan.

Jeffrey Lindsay, an analyst at Sanford C. Bernstein, says reported talks with potential white knights are "a ploy to drive up Microsoft's bid offer." Lindsay expects Microsoft to hold firm for now at $31, then perhaps up the bid to $35 or $36 within two weeks. "The pressure will really be on Yahoo to accept," he says.

Ballmer's next move may be to rally big shareholders to back a hostile takeover bid, says David Mitchell, senior vice president of IT research at Ovum. That could take the form of a tender offer made directly to shareholders or a proxy fight to win control of the Yahoo board.

YAHOO REJECTS MICROSOFT'S OFFER

Yahoo officially rejected Microsoft's $44.6 billion takeover bid stating that it was too low.

From The New York Times:

“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 said in a statement.

[If Microsoft decides to continue to pursue Yahoo it] may have an easier time than it could have had two weeks ago: since then, millions of Yahoo’s shares have traded hands to short-term-oriented hedge funds that typically favor a quick sale, as opposed to value investors who hold shares for the long term.

Microsoft could also decide to make an offer directly to shareholders, called a tender offer, which would put more pressure on Yahoo’s board to negotiate. At the same time, Microsoft could also set a deadline for its bid, known as an “exploding offer.”

And if Microsoft decides to make this a nasty battle, it could start a proxy contest to oust Yahoo’s board at its next election; it would have until March 13 to nominate a new slate of directors.

MICROSOFT BIDS $44.6 BILLION TO ACQUIRE YAHOO

Microsoft has offered $44.6 billion, or $31 per share, to acquire Yahoo. Yahoo's stock closed at $19.18 per share Thursday, so the offer is a premium of 62%. In pre-market trading Friday, Yahoo shares were trading at $29.06 at the time of this posting.

From The New York Times:

If consummated, the deal would redraw the competitive landscape of the Internet consumer services business, where both Microsoft and Yahoo have struggled to compete with Google.

Microsoft said the combination of the two companies would create efficiencies that would save approximately $1 billion annually. The software giant also said that it has an integration plan to include employees of both companies and intends to offer incentives to retain Yahoo employees.

Earlier this week, Yahoo said it would cut 1,000 jobs in an effort to refocus the company and reduce spending, and issued an outlook for 2008 that disappointed investors.

MICROSOFT BUYS PIECE OF FACEBOOK

From USA Today:

Microsoft said Wednesday it would pay $240 million for a small slice of Facebook in a deal that values the red-hot social networking website at $15 billion.

In selling a 1.6% stake to the software giant, Facebook rebuffed a competing offer from search-engine giant Google. Google had no comment.

Microsoft also will sell ads on Facebook outside the USA, extending a marketing relationship that began last year. The deal, announced after several weeks of negotiations, is considered a coup for Microsoft as it slugs it out with Google for online ad sales. Facebook, founded in 2004, has more than 47 million users.

The hefty price paid by Microsoft validates the gambit by Facebook CEO Mark Zuckerberg to spurn a $1 billion takeover bid from Yahoo last year. In 2005, News Corp., parent of Fox News, paid $580 million to acquire Facebook rival MySpace.

Microsoft covets the data Facebook collects about its members' tastes and preferences. Microsoft wants to sell ads based on those preferences, ads that appear when Facebook members use Windows Live services, Windows Mobile smartphones — even its Xbox Live online-gaming service, says online search expert Kevin Lee, chairman of Did-it.com.

GOOGLE ACQUIRES DOUBLECLICK

From The New York Times:

Google agreed to its largest acquisition yesterday, reaching a deal to purchase DoubleClick, the online advertising company, from two private equity firms for $3.1 billion in cash, almost double what it paid for YouTube last year. And perhaps just as important, the deal kept DoubleClick from the hands of Microsoft.

For Google, the purchase is another step in its transformation from a search engine into an advertising powerhouse. DoubleClick, which is based in New York City, specializes in software for display advertising and has close relationships with Web publishers, advertisers and advertising agencies.

The sale of DoubleClick involved weeks of negotiation that included at one point Yahoo, AOL and, most prominently, Microsoft, which has been trying to position itself as an advertising rival to Google. Even though Microsoft has more cash on hand than Google, the company was ultimately outbid.

“Keeping Microsoft away from DoubleClick is worth billions to Google,” an analyst with RBC Capital Markets, Jordan Rohan, said. “Yet again, Microsoft is on the sidelines and away from the action.”

YAHOO TO REPORT EARNINGS TODAY

Yahoo will report fourth quarter earnings today and will likely give an update on the slow customer migration from its old keyword search advertising to the new "Panama" system, which works much more like Google's Adwords. Investors hope Panama will help Yahoo narrow the growing gap in online ad sales.

WSJ.com