The answer to Microsoft is no: Yahoo holds out for more cash

By Scott M. Fulton, III, BetaNews

February 11, 2008, 11:14 AM

Now that Yahoo is apparently in play, and talk among Wall Street Insiders touches on big names such as Google, Amazon, and AOL, Yahoo apparently feels all the talk has elevated its value high enough where it can afford to say no to Microsoft.

After its board of directors met over the weekend to discuss the takeover bid from Microsoft, Yahoo's response this morning is that Microsoft hasn't offered enough. That's not to say it won't accept another bid from Microsoft or perhaps someone else, but it's taking a big gamble that another bid is forthcoming.

"After careful evaluation, the Board believes that Microsoft's proposal substantially undervalues Yahoo," reads this morning's corporate statement, "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 Board of Directors is continually evaluating all of its strategic options in the context of the rapidly evolving industry environment and we remain committed to pursuing initiatives that maximize value for all stockholders."

In short, the company is saying Microsoft isn't taking into account how valuable Yahoo's assets truly are, which perceived in terms of future value. Microsoft may very well agree, having indicated on February 1 it wasn't really interested in many of Yahoo's assets, and intends instead to put Yahoo's engineers to work building onto Microsoft's existing platforms and technology assets.

The evaluated price of the initial takeover bid was $31 per share. While that was ascertained to have been a 62% premium over Yahoo's closing price on January 31, Yahoo's share value had been trading at near $30 since Microsoft announced its bid. By 10:45 am ET, Yahoo was trading up on the NASDAQ about 1% on the day, though a general decline in overall markets started weighing heavily on the stock, and it was headed back toward par.

Last week, financial analyst Tripatinder Chowdhry, who has covered Yahoo for over a decade, wrote he believed there was evidence that Amazon may have been planning an amicable takeover, and Microsoft's move was essentially a ploy to pre-empt that pairing.

This morning, with Yahoo having stated it has hired Goldman Sachs, Lehman Brothers, and Moelis & Co. to serve as financial advisors, the London Times is floating what it believes to be evidence that those advisors have already started softening Time Warner on the idea of what the paper calls a "tie-up" between Yahoo and AOL. "Tie-up" is a very fuzzy term that does not suggest an outright takeover, and BetaNews is looking into this story further.