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[PSUs]| Friday 15th February 2008 |
Microsoft's original cash-and-stock offer of $44.6 billion, or $31 per share, represented a 60% premium on Yahoo's stock price. The offer value has since shrunk to about $42 billion.
Wall Street has grown convinced that Microsoft's price is an insurmountable hurdle to would-be rivals and that the search for alternatives by Yahoo's board is basically designed to exact a higher offer from the company.
"Doing some alternative deal is almost sure to be of less value to shareholders," says Clayton Moran, an analyst with the Stanford Group in Houston. "You would see all sorts of lawsuits - and they would be lawsuits with merit."
A Yahoo spokeswoman declined to comment on the board's
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"Yahoo's board is carefully and thoroughly evaluating all of the company's strategic alternatives and will pursue the best course of action to maximize long-term value."
Despite discussions, according to sources, of tie-ups with other companies from Google to News Corp, Yahoo's directors are not tech radicals who will attempt to go it alone at any cost.
"It is quite a capable and experienced board. Its composition and collective experience suggests the directors have an active interest in doing what's best for shareholders," says Sanford C. Bernstein analyst Jeffrey Lindsay.
"There should be no real surprises," Lindsay says. "They are just exercising their responsibility as board members." He predicts the sale of the company at a modestly higher price.
Jeffries & Co analyst, Youssef Squali, expects a drawn-out process in which Microsoft ultimately prevails by sweetening its bid by another $2 to $3 per share. But he warns against board brinkmanship in pursuing a goal as high as $40 a share.
"The risk of derailing a deal at the end of the day can prove dangerous... considering that a 'no deal' scenario would send the stock back below $20 quickly," Squali writes in a research note to clients.
The board has days or weeks to decide. A month from now, nominations for board members are due for Yahoo's annual shareholder meeting.
Microsoft could turn hostile and nominate its own candidates as a way of winning support for its deal.
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