Yahoo Inc's board believes Microsoft Corp's unsolicited bid of $44.6 billion to acquire Yahoo "massively undervalues" the company and directors are set to reject the offer, The Wall Street Journal reported on Saturday, citing an unnamed source.
After a series of meetings over the past week, Yahoo's board determined that the $31 per share offer "massively undervalues" Yahoo, the person said. It also doesn't account for the risks Yahoo would be taking by entering into an agreement that might be overturned by regulators. The board plans to send a letter to Microsoft Monday, spelling out its position.
Yahoo's board believes that Microsoft's is trying to take advantage of the recent weakness in the company's share price to "steal" the company. The decision to reject the offer signals that Yahoo's board is digging in its heels for what could be a long takeover battle. The company is unlikely to consider any offer below $40 per share, the person said.
It's unclear whether Microsoft would be willing to pay such a premium, which would increase the value of its original cash and stock bid by more than $12 billion. The rejection comes as Yahoo's board has been considering various other scenarios, including a search advertising partnership Google Inc. Yahoo's directors are still considering that and other options that would safeguard the company's independence, people close the company say.
Yahoo's board appears to be betting that Microsoft doesn't want to "go hostile" and try to acquire the company against the wishes of management and the board. Such a course could cause deep resentment among the rank-and-file engineers whose cooperation is crucial to the company's success. A hostile takeover could also make it more difficult to get the deal past regulators if Yahoo management tries to convince authorities that the deal is anticompetitive.
Given the size of Microsoft's bid, the likelihood of a higher offer from another bidder is minuscule and the list of potential suitors is very short. Still, Yahoo is rumored to be toying with the idea reorganizing the company and outsourcing its search-based advertising to Google in an effort to bolster revenue and remain a standalone company. Some industry watchers have also speculated that Yahoo could be trying to arrange an alternative deal with AOL.
Same time Microsoft lost nearly $40 billion in market cap in the eight trading days since they made their offer. That’s quite a penalty - and one Microsoft likely didn’t plan on dealing with. Microsoft closed at $32.60 per share on January 31, hours before the Yahoo bid was placed. On Friday, the stock closed at $28.56, a decline of about 13% and the lowest it has been since 2006. That erased just under $38 billion in Microsoft shareholder value.
Yahoo has taken "poison pill" provisions to prevent an unwanted takeover. Microsoft would likely have to oust the board in order to overturn them.
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