Report: Yahoo Board Nixes Microsoft Deal

Authored by Scott Goldberg on February 10, 2008 - 6:24am.

Sunnyvale, Calif. - It looks like Google (NSDQ: GOOG) needs to worry no more: Yahoo Inc’s (NSDQ: YHOO) board has decided to reject Microsoft Corp.’s (NSDQ: MSFT) unsolicited $44.6 billion offer for the company. According to the report, an insider at Yahoo says that Microsoft’s bid “massively undervalues” the company. “It also doesn't account for the risks Yahoo would be taking by entering into an agreement that might be overturned by regulators,” writes WSJ’s Matthew Kartnitschnig.

"Yahoo's board of directors has carefully reviewed Microsoft's unsolicited proposal with Yahoo's management team and financial and legal advisers and has unanimously concluded that the proposal is not in the best interests of Yahoo and our stockholders," the company said in a statement Monday. "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."

Yahoo shares immediately jumped on news of the bid, going from a low of $18.62/share to $29.33/share in less than a week. Unless investors buy the thinking that $31/share undervalues Yahoo, a price the company has not seen since November, it is likely the stock will fall sharply in the near term. Alternatively, the news could be seen as a bargaining play on Yahoo's part. If the company is able to significantly raise the price, the stock should continue to increase.

According to the WSJ report, Yahoo’s board believes Microsoft is trying to take advantage of the company’s recent stock plunge, which went from $33.63/share in late October to $18.62 in three months, a 44% drop. One person close to the deal believes Yahoo will not consider any bids below $40/share.

For Microsoft to match such demands would mean a $12 billion increase in the bid.

The news is music to Google’s ears. The company began a public campaign last week denouncing the bid, saying it was working to help Yahoo fend off the takeover, even reaching out to its rival as a supportive hand. There’s no comment yet from Mountain View, though we can likely expect one soon.