Microsoft Corp. issued an ultimatum to Yahoo Inc. Saturday, giving it three weeks to reach a deal or face the prospects of a hostile takeover.In case of refusal Microsoft plans to take its case directly to the shareholders at the next general meeting and unseat the present board which is opposing the bid. Steve Ballmer, Microsoft CEO has also hinted that they may lower the price offered.'If we are forced take an offer directly to your shareholders, that action will have an undesirable impact on the value of your company from our perspective which will be reflected in the terms of our proposal,' he wrote in a letter to Yahoo on Saturday.
Yahoo on its part seems to be bargaining for a higher price. It has projected a doubling of its cash flow in the next three years to $3.7 billion, and has argued that its shares are worth $40 a share, which is substantially higher than the $31 a share Microsoft is offering in cash.Yahoo is also in talks with Time Warner Inc., News Corp. and Google, but there has been no rival bid so far. Yahoo is keeping quiet as it feels protected by a 'poison pill' takeover defense which will make a hostile takeover very expensive.It also has an employee payout plan that will be triggered by a change in ownership, raising the cost of acquisition.
Microsoft is desperate to do this deal.The paradigm is shifting away from their core business to the internet. They have spent huge amounts of money in this area but haven't got it right as yet. It makes sense for them to buy out Yahoo. Why the hurry? There is speculation that Microsoft wants to get the deal done and past the federal anti-trust regulators while President Bush is still in office. Such a deal usually takes six to eight months to go through and there is just enough time to squeeze through before Bush's term ends.
Most investors feel that Microsoft should pay more for Yahoo. If it is handled right, Microsoft will pay more, they say. They add that $34 to $35 per share is a good range. A higher price in a deteriorating economic scenario will boost Wall Street's fortunes as well!