The Wall Street Journal is reporting today that Yahoo plans to reject Microsoft’s offer as insufficient: Yahoo’s board determined that the $31 per share offer “massively undervalues” Yahoo, the person said. It also doesn’t account for the risks Yahoo would be taking by entering into an agreement that might be overturned by regulators. The board plans to send a letter to Microsoft on Monday, spelling out its position.
If this is correct, it seeks to force Microsoft to raise its bid price to a desired $40 or more per share, a significant increase above the premium Microsoft has already offered. Alternatively, Microsoft could attempt to go directly to shareholders in a hostile takeover attempt.
The anticipated rejection is a bit of shrewd brinkmanship because it appears to be consistent with shareholder interests in maximizing the value of the company but it’s also a gambit to preserve the independence of Yahoo. Microsoft has strong disincentives to mount a hostile takeover attempt of Yahoo because it will potentially poison the relationship between Microsoft managers and Yahoo employees if the acquisition were to happen.
It will only get more interesting as Microsoft ponders its next move.