Yahoo set to reject Microsoft takeover bid

Nine days after it announced it would consider Microsoft's unsolicited $44.6 billion (£22.3 billion) takeover bid, the board of internet portal and online advertising business Yahoo is expected to announce imminently that it is rejecting the offer.

Sources familiar with the situation have told IT PRO that after carrying out due diligence and evaluating the likely value and return for shareholders, the board is preparing a formal rejection of the bid by letter.

"The bid in its current form undervalues the business, and the board believes that the management team can return more value to shareholders by executing [chief executive] Jerry Yang's turnaround plan for Yahoo," our source said.

Microsoft's bid, made on 1 February valued Yahoo at $31 (£15.50) a share, based on the closing price of both company's stock on 31 January. Yahoo stock was valued at $19.13 at the time. Since then Yahoo's share price has risen considerably while Microsoft's has fallen, complicating the value of the part cash, part stock offer from Microsoft and leading the debt-free business to investigate its options for using borrowed cash to help fund its bid.

This is likely to become a critical element should Microsoft choose to raise its bid, or if a counteroffer emerges, triggering a bidding war.

US financial newspaper The Wall Street Journal is also reporting at the time of writing that Yahoo will reject the bid, citing unnamed sources that claim the offer will be rejected on the grounds that it fails to reflect the inherent business risks and potential antitrust objections associated with two companies of such size and market dominance coming together.

Both Microsoft and Yahoo were unable to comment at the time of publication.

Numerous options have been considered by both the media and analysts in the past week, including accepting the bid, rejecting it and finding safe harbour with rivals and partners including Google and News Corporation. One option carrying weight involves News Corporation swapping its MySpace social networking website for a blocking stake and board representation at Yahoo, though News Corporation chairman Rupert Murdoch has so far ruled out any interest in a deal of any kind with Yahoo.

"We are just not interested at this stage," said Murdoch on Tuesday.

If successful, the coming together of Microsoft and Yahoo would represent the largest merger of two technology and content companies since the 2001, $164 billion (£83.6 billion) merger of AOL and Time Warner, a deal that IT PRO reported earlier this week is on the verge of being undone.

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