Yahoo shares tumble on scrapped bid

Yahoo Inc, the Web company that spent three months fighting a takeover by Microsoft Corp, fell 21 percent in early trading after the software maker scrapped the bid because executives failed to agree on the price.

Citigroup Inc and ThinkPanmure LLC analysts cut their ratings on Yahoo's stock to "sell" after Microsoft withdrew its bid. Microsoft said this weekend it walked away when Yahoo demanded $37 a share after the $44.6 billion bid was raised by about $5 billion to $33 a share.

The move leaves Yahoo Chief Executive Officer Jerry Yang to prove he can revive sales and the share price by keeping the company independent. Sunnyvale, California-based Yahoo, owner of the No 2 search engine, fell 32 percent on the NASDAQ in the year before Microsoft's offer. Bigger rival Google Inc expanded revenue more than three times faster than Yahoo last quarter.

"Yahoo's stock is going to crater, and Yahoo shareholders are going to go bang on everyone's head and say, 'How does this benefit me?'" said Richard Williams, an analyst in Short Hills, New Jersey, at Cross Research who advises investors to hold on to Microsoft shares and doesn't own any.

Yahoo fell $5.96 to $22.71 in trading before exchanges opened after closing at $28.67 on the NASDAQ Stock Market on May 2. Redmond, Washington-based Microsoft, the world's biggest software company, rose $1.66, or 5.7 percent, to $30.90, while Google advanced $18.71 to $600.

"Yahoo is going to be under a lot of pressure," said Peter Falvey, managing director at Boston-based technology-merger adviser Revolution Partners. "A lot of shareholders are going to say, 'Hmm, maybe we overreached.'"

Microsoft CEO Steve Ballmer and deputy Kevin Johnson met on May 3 in Seattle with Yahoo co-founders Yang and David Filo, two people familiar with the talks said. Yang and Filo refused to accept less than $37 a share and flew back to California. Ballmer called Yang to inform him of the decision just before it was announced, the people said.

Not enough

Yahoo Chairman Roy Bostock reiterated over the weekend in a statement that Microsoft's offer wasn't enough. The company will continue to expand search advertising sales while improving its display advertising business, he said.

"With the distraction of Microsoft's unsolicited proposal now behind us, we will be able to focus all of our energies on executing the most important transition in our history," Yang, 39, said in the statement.

Yang had argued the company's rank in the US search market and its Asian operations warranted a higher bid. He considered a combination with Time Warner Inc's AOL and tested advertising software from Google. Last week, a person familiar with the matter said Yang might agree to a broader deal with Google.

"Both sides reported that the trial went very well," Jeffrey Lindsay, an analyst at Sanford C. Bernstein in New York, said. "It would strongly suggest to us that they do have something in the works with Google."

Agencies

(China Daily 05/06/2008 page17)