Microsoft on Saturday applied pressure to Yahoo by submitting a letter directly to the search engine firm's board of directors, setting a deadline for the company to accept Microsoft's $31 per share takeover offer. Citing deteriorating economic conditions, the Redmond, Washington-based Microsoft refused to increase its bid and gave Yahoo a total of three weeks to accept the $44.6 billion bid as originally made in late January before it would be "compelled" to bypass the board and bring a lower-priced offer directly to Yahoo's shareholders. This will include launching a proxy battle by stepping up pressure to elect a more takeover-friendly board of directors at Yahoo, Microsoft said.
"If we have not concluded an agreement within the next three weeks, we will be compelled to take our case directly to your shareholders, including the initiation of a proxy contest to elect an alternative slate of directors for the Yahoo! board," the letter read. "The substantial premium reflected in our initial proposal anticipated a friendly transaction with you. If we are forced to 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."
The letter also claims that Yahoo's value has been damaged in the weeks since the original bid, with the combination of a poor US economy and disappointing results at Yahoo itself diminishing the company's worth. Microsoft also accuses Yahoo of making strategic changes that would sour the potential deal and argues that the northern California company should be appreciative of the bid originally made rather than attempting to force a higher bid.
"By any fair measure, the large premium we offered in January is even more significant today," Microsoft CEO Steve Ballmer said in its letter. "We believe that the majority of your shareholders share this assessment, even after reviewing your public disclosures relating to your future prospects."
Microsoft's communication emphasizes a split between its perception of the deal and Yahoo's reaction, with Microsoft today claiming that its offer assumed a "friendly" response while sources have suggested that the takeover offer fulfilled a threat to take the matter public when Yahoo repeatedly refused to accept Microsoft's terms, which were considered unsolicited by Yahoo. The latter is said to have explored several different alternatives to accepting Microsoft's offer, including potential deals with AOL, News Corp., and other organizations.
Some Yahoo contingents are known to support Microsoft's proposal and are considered the most likely to vote in a new directorial board, including two retirement groups that have filed lawsuits against Yahoo for its decision.