Investors may deliver major snub to Yahoo chief

Jerry Yang, who pledged last year to lead his team of "Yahoos" to victory, may find investors would rather team up with Microsoft Corp.

Yahoo! Inc rose the most since its first day of trading when Microsoft offered $44.6 billion for the company, the second-most popular search engine, on Feb 1. Yang, who returned as Yahoo's chief executive officer to try to reverse a two-year stock slump, had presided over a 32 percent drop before the bid.

Microsoft said Yahoo executives snubbed its overtures last year in favor of tackling Internet search leader Google Inc independently. Yahoo's stock performance shows investors don't embrace that strategy and that Yang's promises to revamp the company's search engine and gain on Google were in vain.

"It's hard to look shareholders in the eye and say it doesn't make sense," Robert Doll, chief investment officer of global equities at BlackRock Inc in Princeton, New Jersey, said of Microsoft's unsolicited offer.

Microsoft's $31-a-share bid came three days after Sunnyvale, California-based Yahoo posted an eighth straight quarter of declining profit and projected sales that trailed most analysts' estimates. The stock was trading at $19.18 before the offer. It rose $9.20 to $28.38 in NASDAQ Stock Market trading after the Microsoft announcement.

Yahoo said in a statement on Feb 1 that it will review the proposal "promptly". Officials haven't commented publicly since then. Yang was not available to comment for this story, according to Yahoo spokeswoman Diana Wong.

Yang agreed to take the reins at Yahoo in June, replacing Terry Semel, after its share of Web searches tumbled and the company lost out on sales of graphics-based ads mainly to social-networking sites like News Corp's MySpace and Facebook Inc.

In Semel's six years at the helm, he built Yahoo's online ad business through acquisitions and internal development. While the shares jumped almost sevenfold under his watch, Google's rising dominance led the stock to plunge 35 percent in 2006, and investors began calling for Semel to resign.

"I'm ready to rally our near-12,000 Yahoos around the world," Yang said on a conference call when he took over. He said he planned to foster "a winning culture, while strengthening our leadership team to galvanize Yahoos around our goals."

'Too soon'

Microsoft's bid came too soon for Yang to prove himself, said Ellen Siminoff, who worked with him at Yahoo for seven years and now leads Mountain View, California-based Efficient Frontier, which helps companies advertise on search engines.

"It's hard to get any sort of change that quickly," Siminoff said. "He would rather sell having fixed the company than sell after a perception of weakness."

Microsoft chose Yahoo as a partner after repeatedly coming in a distant third in Internet searches and failing to bolster advertising revenue on its own. Yahoo would give Redmond, Washington-based Microsoft the most popular group of websites in the US, which reach about 500 million people worldwide.

The US Justice Department is "interested" in reviewing the antitrust implications of the deal, agency spokeswoman Gina Talamona said last week. Neelie Kroes, commissioner of competition for the European Commission, said her agency also would scrutinize a Microsoft-Yahoo deal.

Google said that the offer "raises troubling questions" for Web users, and questioned whether Microsoft would seek to exert "inappropriate" influence over the Internet. Microsoft General Counsel Brad Smith disputed Google's claims in a statement.

Rejecting Microsoft

Microsoft and Yahoo explored ways to work together in late 2006 and early 2007, according to a letter by Microsoft Chief Executive Officer Steve Ballmer to the Yahoo board dated Jan 31. Yahoo rejected the idea of being taken over by Microsoft a year ago, according to Ballmer.

"I doubt that Jerry and David want to sell Yahoo," said Mark Cuban, the billionaire owner of basketball's Dallas Mavericks, who sold Broadcast.com to Yahoo in 1999. "But this is a very smart move for Microsoft. There will surely be a ton of duplication on the technology side, which should cut costs significantly."

The offer from Microsoft is one of many options Yahoo is evaluating, Yang and Chairman Roy Bostock said in a Feb. 1 e-mail to employees obtained by Bloomberg News. The board will respond after reviewing the alternatives, they said. If Yahoo accepts the deal, Yang stands to get about $1.6 billion in cash or Microsoft stock for his 52.8 million shares.

Yahoo's investment bankers, Goldman Sachs Group Inc and Lehman Brothers Holdings Inc, are approaching other potential bidders in search of a higher offer, the New York Times reported on Feb 2.

Microsoft may have to raise its price to win over Yahoo's board, said Jason Helfstein, an Oppenheimer & Co analyst in New York. Helfstein suggested in a Feb 1 report that an increase to as much as $40 a share, or about $53.5 billion, was possible. Microsoft spokesman Bill Cox declined to comment.

Agencies

(China Daily 02/05/2008 page16)