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.

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.