Yahoo holds out for $45 billion in strategic attempt billion

SAN FRANCISCO – Yahoo Inc. spurned Microsoft Corp.’s $44.6 billion takeover bid as inadequate Monday, betting that it can elicit a higher offer from the world’s largest software maker or find another way to deliver a comparable payoff to its shareholders.\nThe rebuff by the slumping Internet pioneer had been widely anticipated after word of Yahoo’s intention was leaked during \nthe weekend.\nIn its formal response, Yahoo said its board had concluded Microsoft’s unsolicited offer “substantially undervalues” the Sunnyvale, Calif.-\nbased company.\nYahoo indicated it could be lured to the negotiating table if Microsoft ups the ante, without mentioning the price it has \nin mind.\n“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,” Yahoo said in \na statement.\nInvestors appeared confident that Microsoft wants Yahoo badly enough to raise the stakes. Yahoo shares rose 34 cents to $29.54 in Monday’s morning trading while Microsoft shares fell 46 cents to $28.10.\nIf Microsoft doesn’t raise its offer, Yahoo Chief Executive Jerry Yang assured employees in a Monday e-mail that the company is poised to rebound on its own and become a “must buy” in the $45 billion online \nadvertising market.\n“We have accomplished a great deal in a very short time,” wrote Yang, a company co-founder who promised things would get better after he became CEO eight months ago. “Yahoo is a faster-moving, better organized, more nimble company well on its way to transforming the experiences of its users, advertisers, publishers \nand developers.”\nJust two days before Microsoft made its bid, Yang had warned Yahoo faced “headwinds” that made it unlikely the company’s performance would improve significantly \nuntil 2009.\nYahoo’s stock price had dropped by more than 40 percent in the three months leading to Microsoft’s bid, valued at $31 per share when it was announced Feb. 1. The offer was 62 percent above Yahoo’s market value at \nthe time.\nMany analysts believe Redmond, Wash.-based Microsoft will eventually raise its bid to $35 to $40 per share, sweetening the pot by $5 billion to $12 billion in an effort to negotiate an amicable sale.\nMicrosoft was prepared to pay at least $40 per share for Yahoo a year ago, according to a person familiar with the talks between the two companies a year ago. Yahoo wasn’t interested then because it was confident in its own strategy, said the person, who didn’t want to be identified because Microsoft’s 2007 offer was never publicly disclosed.\nBut a higher bid now could hurt Microsoft’s own stock price, which has been slipping amid concerns that a Yahoo takeover could be more trouble than it’s worth. Microsoft’s market value has plunged by more than $40 billion, or 14 percent, since the bid was made public.\nMicrosoft representatives didn’t immediately respond to requests for comment \nMonday morning.\nRBC Capital Markets analyst Jordan Rohan predicted Yahoo’s board will have little choice but to sell the company if Microsoft raises its bid to $35 or $36 per share. \n“Yahoo management has already exhausted the patience of its largest, longest-suffering shareholders,” Rohan wrote in a Monday note.\nIf it doesn’t want to pay more money, Microsoft could take its original bid directly to Yahoo’s shareholders. Microsoft’s management began preparing for that possibility last week by meeting with some of Yahoo’s major shareholders to rally support for its offer.\nIn a more extreme tactic, Microsoft could try to override Yahoo’s board by trying to oust the current directors later this year – a risky maneuver that would likely create hard feelings that would make it more difficult to cobble the two businesses together if a deal \nwere consummated.