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Surprise Package in Microsoft's Bid To Takeover its
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April 23, 2008 / SAN FRANCISCO -- Yahoo Inc. on Tuesday made much ado about its first-quarter financial performance as a sign that it's turning around its fortunes.
WALL STREET reacted like nothing happened.
Results and projections were not strong enough to force Microsoft to raise the price of its takeover offer for Yahoo but maybe just good enough to keep the software giant from lowering its bid.
"Investors needed an 'aha' moment today," said analyst Anthony Valencia of TCW Group in Los Angeles. "Yahoo didn't provide it."
Yahoo's stock price dropped slightly in after-hours trading after falling by a penny to $28.54. Microsoft shares, which had lost 17 cents to $30.25 in regular trading, ticked up slightly.
Valencia and other analysts say it now appears more likely that the standoff between Yahoo and Microsoft will drag on, perhaps into summer. That would hand a clear advantage to Google, which benefits from its two rivals' distraction.
Part 02 / Yahoo-Google test gets antitrust scrutiny
Yahoo Inc.'s short experiment with outsourcing some of its Web-search ads to Google Inc. has drawn scrutiny from antitrust regulators.
Yahoo and Google said they had provided the Justice Department with unspecified information in response to questions about the two-week test, which was designed to explore how a possible collaboration could help Yahoo thwart Microsoft Corp.'s takeover bid.
But any combination of Google and Yahoo, the top two search engines, raises antitrust concerns.
In an e-mailed statement, Google spokesman Adam Kovacevich said, "We informed the Justice Department before we launched this test, and we have been responsive to their questions about it."
Google conducted 59.8% of all U.S. searches last month while Yahoo had 21.3%, according to research firm ComScore Inc. When they announced their test, Microsoft complained that any "definitive agreement" between Google and Yahoo would make the search advertising market "far less competitive."
Part 03 / Microsoft has imposed a deadline for the two companies to negotiate an agreement. and threatened to launch a proxy fight to oust Yahoo's board and perhaps lower its price if Yahoo doesn't agree to a deal. Yahoo's board has twice spurned Microsoft's unsolicited takeover offer, saying it undervalued the company.
In a conference call with investors, Yahoo Chief Executive Jerry Yang argued his case yet again for the Internet pioneer's bright future while underscoring that it remained open to "any and all" alternatives that recognize the Sunnyvale, Calif., company's "full value" -- including a deal with Microsoft.
Microsoft wants to buy Yahoo to challenge Google
in the online advertising market, and especially in Web search. Microsoft CEO Steve Ballmer says the Jan. 31 cash-and-stock bid for Yahoo, initially valued at $44.6 billion, or $31 a share, is generous. Microsoft's stock decline has lowered the deal's value to about $43 billion.
"The $31-a-share bid from Microsoft is the best thing that ever happened to Yahoo," Gillis said. "It seems to have reinvigorated the company and has given the management purpose with an 'us against them' mentality. They are adding value as opposed to destroying value."
The only firepower remaining in Yahoo's arsenal is to come up with a viable alternative, Sanford C. Bernstein analyst Jeffrey Lindsay said. Yahoo was close to a deal two weeks ago to join with Time Warner Inc.'s AOL, with Time Warner receiving a roughly 20% stake in the combined entity and Yahoo buying back billions of dollars in stock, people familiar with the matter said.
At about the same time, Yahoo began a test to outsource some of its search ads to Google. Yahoo President Susan Decker said Tuesday that it was too early to speculate on whether Yahoo would form a permanent pact with Google.
In the meantime, Microsoft's offer is the best on the table, Valencia said.
"Investors can be emotional but they are not sentimental, and there's a big difference there," he said. "They are not going to stick around and say, 'We really don't like the thought of Yahoo being gobbled up by big, bad Microsoft so let's give them some more time.' They don't care about that. They are strictly concerned with locking in their returns."
4. Bylines /The extent of the inquiry by the Justice Department was unclear Wednesday. Neither Google nor Yahoo would say what type of questions the antitrust regulators asked.
"It's easy to see how there would be antitrust questions about something like that," said Gary Reback, an antitrust attorney who persuaded the Justice Department to pursue its landmark antitrust case against Microsoft in the 1990s. "On the other hand, are those bigger than having Microsoft acquire Yahoo?"
When the software giant made its unsolicited bid for Yahoo in February, the department said it would review the deal if it was completed.
Robert E. Litan, a senior fellow at the Brookings Institution and an antitrust official in the Clinton administration, said the Justice Department might be looking into the possible implications of a long-term collaboration between Google and Yahoo. An investigation into a short-term arrangement is unusual, he said, but the length does not matter under antitrust law.
"If two people or three people get in a room and just temporarily price-fix . . . that would be against the law," he said. "There's no immunity just because it's a short-term deal."
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Analysts Predict that Yahoo Will Include a
Surprise Package in Microsoft's Bid To Takeover its
120 PIXELS 3 columns