Yahoo stock slips as buyout talks end Google may be winner Seattle Times

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The first signs of outrage flared Monday as Yahoo s stock plunged percent in reaction to Microsoft withdrawal of its sweetened per share bid and two lawyers already suing the company s board vowed to amend their complaint to account for a massive loss in shareholder value. The breaking point in the month standoff occurred over the weekend when Yahoo co founders Jerry Yang and David Filo met with Microsoft Chief Executive Steve Ballmer after he had agreed to raise the software maker s bid by about billion or more than per share. Yang and Filo said Yahoo s board wanted per share a price the company s stock hasn t reached in more than two years. In response Ballmer pulled his offer off the table. In an interview Monday Yang indicated he had expected Ballmer to counter. We engaged with them and we wanted to find a way to get something done. But they walked said Yang who was named as Yahoo s chief executive officer months ago. If he wants to r! emain CEO Yang probably will have to show his turnaround strategy is compelling enough to propel Yahoo s stock beyond per share within a year. Yang has promised that a more sophisticated and far flung ad network will accelerate Yahoo s net revenue growth by at least percent in and up from the recent pace of percent increase. The company is doing better than three months ago Yang said Monday. I think in many ways this takeover threat has been good for us. We still have a lot of work to do to demonstrate that we can be successful and I am focused on that. But Yang s credibility has been undermined by Yahoo s repeated forecasts of better times ahead while its profits steadily eroded during the past two years. We are not willing to give Yahoo the benefit of the doubt that they can make meaningful improvement over the next three years UBS analysts Benjamin Schachter Heather Bellini and Abhey Lamba wrote in a joint research note. If Yahoo stumbles that could entice Microsoft to r! eturn with another takeover bid that would be more difficult to turn down. Venture capitalist Todd Dagres of Spark Capital likened this approach to a crocodile s. Rather than try to eat its prey while it s warm and tough Microsoft is dragging it down to the bottom of the river sticking it under a rock and eating it later when it s cold and soft he said. Although Microsoft has publicly indicated it will focus on measures besides buying Yahoo in its effort to make its Internet division profitable several analysts predicted the software maker will revive its offer in the summer or fall if Yahoo doesn t snap out of its two year funk the weakness that exposed it to an unwanted takeover in the first place. Should the frustration of Yahoo shareholders come to a boil we believe Microsoft could re enter the picture essentially playing the role of the white knight analyst David Hilal of Friedman Billings Ramsey Co. wrote in a Monday research note. With similar opinions reverberating through the stock market Yahoo s stock didn t sink as dramatically as m! any analysts anticipated. But Yahoo shares shed . to close at . wiping out nearly half the gain they had made since Microsoft made its bid Jan. . The drop left the Sunnyvale based company s market value about . billion below Microsoft s last offer. Yahoo s stock price was . before Microsoft made its offer. I was expecting to see a more extreme reaction to Microsoft s withdrawn bid Stanford Group analyst Clayton Moran said. Microsoft is trying to make it seem like it s not coming back with another bid but this somewhat muted reaction shows the market isn t buying it. If Microsoft returned with a real offer and a real proposal Yang said we would be happy to listen. Yang figures to get an earful from irate shareholders at the annual meeting. Yahoo finally set the meeting for July after indefinitely postponing it in early spring as part of its effort to foil a possible hostile takeover attempt by Microsoft. Now it may be Yahoo s shareholders who try to oust Yang and the rest of! Yahoo s board instead of Ballmer who had threatened an attempt to dump the directors if they didn t accept Microsoft s offer. Lawyers for two Detroit based public pension funds that sued Yahoo in February alleging it failed in its duty to act in shareholders best interests will amend their complaint to include the weekend s events according to a statement Monday from the firm Bernstein Litowitz Berger Grossmann. Meanwhile Google Inc. whose dominance in online search triggered Microsoft s bid appears poised to grow even stronger. Unnerved by the prospect of its two biggest rivals joining forces Google reached out to Yahoo to help thwart Microsoft s bid. The collaboration has prompted Yahoo to consider turning over some of its advertising space to Internet search leader Google whose technology yields higher profits from commercial links. If Yahoo announces an ad partnership with Google that could preclude a renewed bid from Microsoft because Ballmer thinks the alliance will diminish Yahoo s long term value. Many analysts share Ballmer s opinion! . While Google could boost Yahoo revenue by anywhere from million to . billion annually it might also hurt Yahoo by undercutting the appeal of its own ad platform. An alliance between Google and Yahoo also would cause regulatory headaches because antitrust officials would to take a hard look at the partnership because the companies combined control more than percent of the Internet s search advertising market. While analysts debated how Yahoo and Microsoft should proceed most agreed Google will benefit from the aborted takeover attempt. Even if Google doesn t end up selling ads on Yahoo s heavily trafficked Web site it has kept some of the Internet s biggest services out of Microsoft s clutches. We believe Google is a major winner given the failure of the Yahoo bid Stifel Nicolaus analyst George Askew wrote in a Monday note. Google is well positioned to continue to gain market share benefit from any Yahoo advertising deal and exploit any ongoing chaos at Yahoo and Microsoft! . Google shares gained . or . percent to close at . Monday. Time Warner Inc. also appears to be in a better negotiating position if it decides to sell its struggling AOL subsidiary as many analysts anticipate. Yahoo had been mulling a possible combination with AOL s online operations as a defensive measure against Microsoft. Now Microsoft may make a run at AOL if it s interest in buying Yahoo is truly dead. And if Microsoft enters the picture Google might offer to increase its percent stake in AOL just to repel Microsoft. A long list of Internet startups also could be in line for big windfalls if Microsoft and Yahoo step up their efforts to acquire more online weapons to challenge Google. And if Microsoft and Yahoo go shopping Google has plenty of cash to get into bidding wars for potential takeover targets like Digg Inc. LinkedIn Corp. and Facebook Inc. Freed of one another Yahoo and Microsoft are buyout prospectors we would expect a rush to deal environment BMO Capital Markets analyst Leland Westerfield. Most analysts believe Microsoft has t! o make some kind of bold move after its online division lost million through the first nine months of the company s fiscal year. Any notion of simply returning to the original pre Yahoo strategy is likely to be insufficiently defined and credible Bernstein Research analyst Charles Di Bona wrote in a Monday note. In a mild surprise Microsoft shares fell cents to . Monday. Most analysts thought the stock would climb because investors had driven down the shares during the last three months on worries that a Yahoo takeover would turn into an expensive mess. Copyright c The Seattle Times Company More Business Technology headlines. E mail article Print view Buy a link here More Business Technology Buyers drive hard bargains in Puget Sound area real estate market More fed action needed Bernanke says Google to expand in Kirkland Your pain at pump not going away Oil tops Zune sharpens social skills Marketplace Enjoy courses for May Dine at new Seattle area restaurants. New Urban Eat! s a dining event from NWsource. 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