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Apr-28-2008

Microsoft deadline for Yahoo deal passes in silence

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April 25, 2008 (Computerworld) Three weeks ago, Microsoft Corp. CEO Steve Ballmer threatened to launch a hostile takeover if Yahoo Inc.' s board did not accept the company's $44.6 billion takeover bid. (More...)
Either Yahoo will surprise many by accepting the deal, or the more likely occurrence of Microsoft launching a hostile takeover will begin to take shape. (More...)
The comments came during a conference call in which Microsoft said it had $4.41 billion in profit (47 cents a share) during the quarter, a drop of 11 percent from the corresponding period a year earlier. (More...)
The list includes John Chapple, former CEO of Nextel Partners Inc.; Edward Meyer, former CEO of Grey Global Group Inc.; Jaynie Studenmund, former chief operating officer of Overture Services, which was acquired by Yahoo; and Vanessa Wittman, former chief financial officer of Adelphia Communications Corp. It's unclear when the elections will be held, as the company changed its bylaws to extend the deadline for director nominations from March 14 to 10 days following the public announcement of the annual meeting. (More...)
"I think that for the time being, Microsoft will step back, let the dust settle and watch the fur fly between shareholders and management," said David Garrity, director of research for Dinosaur Securities. (More...)
Yahoo's board is reportedly meeting Sundayyou'd think the company would have met before the deadline, but I guess we're all prone to procrastination. (More...)
Saying you only like Flikr tells me you only got on the interwebs in the past couple of years. (More...)
The two companies engaged in talks in recent weeks to negotiate a friendly acquisition, but Saturday's deadline to reach a deal passed without comment from either party. (More...)
Yes gmail IS larger (and imap w00t) but you can't ignore what yahoo did. (More...)
Online services revenue was up 40 percent to $843 million, but that business posted a larger operating loss of $228 million. (More...)

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April 25, 2008 (Computerworld) Three weeks ago, Microsoft Corp. CEO Steve Ballmer threatened to launch a hostile takeover if Yahoo Inc.' s board did not accept the company's $44.6 billion takeover bid. Now, however, Microsoft seems to have backed away from its tough talking and said it's prepared to withdraw its offer to buy Yahoo if there is no progress by this weekend. "As we said recently to the board, unless there's progress by this weekend, we will reconsider our alternatives," said Chris Liddell, Microsoft's chief financial officer, in a conference call yesterday to discuss the company's financial results. [1] "In fact, we see the opposite." He reiterated a threat Microsoft made three weeks ago to Yahoo!'s board that it would consider cutting its bid, worth about $US44 billion ($46.6 billion), and take its case to Yahoo!'s shareholders if a deal was not reached by today, U.S. time. "As outlined in our recent letter to the Yahoo! board, unless we made progress with Yahoo! towards an agreement by this weekend, we will reconsider our alternatives," Mr Liddell said. "These alternatives clearly include taking an offer to Yahoo! shareholders or to withdraw our proposal and focus on other opportunities," either from internal growth or growth through acquisitions. Microsoft's chief executive, Steve Ballmer, said on Wednesday that it would withdraw its cash-and-stock offer, originally for $US31 a share, if Yahoo! did not start negotiating. He also said Yahoo!'s better-than-expected first-quarter results, reported earlier this week, had not changed Microsoft's view of its value.[2] Yahoo had already rejected Microsoft's bid of 30th January that had originally valued Yahoo at $44.6 billion, but has since decreased in value following a decline in Microsoft's share price. The reason cited by the Yahoo board for declining the original offer of $31 a share was that it, in their words, grossly undervalued the company's assets and growth potential. It used the recent encouraging quarterly results to buttress its argument, but Microsoft is unwilling to buy the story. Microsoft believes it has offered a fair value for Yahoo and find in the latter's inability to find a counter-offer enough justification for its stance. Liddell repeated a threat Ballmer had made earlier, of reducing its offer and taking the case for consideration directly to Yahoo shareholders. "As outlined in our recent letter to the Yahoo board, unless we made progress with Yahoo towards an agreement by this weekend, we will reconsider our alternatives," Liddell said.[3] "Our third-quarter results demonstrate the benefit of our diversified business model," Liddell said in a statement. "Our broad span across geographies, product categories and customer segments is a tremendous asset and supports our outlook for double-digit revenue, operating income and earnings per share growth for this fiscal year and also for fiscal year 2009." Steven A. Ballmer, Microsoft's chief executive, indicated that the company did not plan to increase its original bid of $44.6 billion for Yahoo, and held out the possibility that Microsoft might drop its bid, if Yahoo's management continues to spurn its offer.[4]

Analysts believe that Google only benefits while Yahoo and Microsoft are distracted by the takeover quest. "Yahoo has a hard decision to make," Silicon Valley analyst Rob Enderle told AFP. "They have to call Microsoft's bluff and if Microsoft isn't bluffing and this goes hostile, it is going to be expensive for both companies." Yahoo posted unimpressive earnings in the first three months of this year, indicating to Enderle and other analysts that Microsoft's offer of 31 dollars per share is too high and that Ballmer might simply walk away from a deal. Other analysts believe Microsoft will increase its bid slightly late in the game -- though nothing near the 40 dollars per share desired by Yahoo's board. Microsoft reported that its profits slipped to 4.38 billion dollars in the first three months of the year despite revenues rising slightly to 14.45 billion dollars.[5] "All of a sudden Microsoft isn't offering a 60 percent more for Yahoo, but more like a 20 percent premium." A side deal in which Google would sell ads alongside Yahoo Web search services could push Yahoo shares into the low $30s, forcing Microsoft to raise its offer or walk away, he said. On January 29 -- the day before Microsoft presented Yahoo's board with an unsolicited takeover bid -- Yahoo warned it had a tough year ahead as it cut jobs and spent more to shore up its advertising business, sending its shares to four-year lows. In mid-March, Yahoo reaffirmed its income from operations should be line with its lowered outlook of $100 million-$110 million.[6]

Liddell held out the possibility that Microsoft may withdraw the offer, which could be hazardous to Yahoo's share price and could inflame investors against Yahoo's management. Whether the threat was simply a negotiating tactic is unclear, but he indicated that Microsoft is committed to building its online business, with or without a merger. He said Microsoft will decide what to do next week if no agreement is reached. Yahoo's board has remained steadfast in its opposition to the deal on the table. Yahoo Chief Executive Officer Jerry Yang suggested this week that he would be open to considering a higher offer, without offering specifics. Microsoft hopes that combining forces with Yahoo will strengthen its online advertising business, which trails far behind Google Inc. Although dominant in desktop software, Microsoft has had only modest success online at a time when consumers are increasingly relying on the Web.[7] Yahoo, meanwhile, is maintaining private contacts with Microsoft's advisers, aimed at securing the promise of a higher price. Mr Ballmer has been pursuing Yahoo for more than 18 months, believing its combination with Microsoft's MSN internet business is the only way the two can challenge Google's dominance of the online advertising market. It is almost three months since Mr Ballmer made his latest cash-and-shares offer public in the hope of bouncing Yahoo's board into agreement. Analysts believe Yahoo shares could drop by more than a third if Microsoft withdraws its offer, but they believe the software giant is willing and able to pay more. Earlier this month, in a letter to Jerry Yang, his opposite number at Yahoo, Steve Ballmer set 26 April as a deadline for talks.[8]

Time runs out by Saturday, the date Microsoft has set for Yahoo to accept the deal or face a drawn-out proxy battle by Microsoft to unseat Yahoo's board. Two weeks ago the software giant threatened to lower its offer if Yahoo did not conclude friendly merger talks with Microsoft by April 26th. Yahoo's chief technology officer will use a speech on Thursday at the Web 2.0 Expo industry show to spell out a strategy to open up Yahoo services such as e-mail, news, sports and advertising to make them more relevant across the Web, not just for users drawn inside its own sites. That same day, Microsoft reports its own quarterly results. The software giant is expected to show strong underlying fundamentals across its range of businesses. Despite mounting time pressures -- and veiled threats by Microsoft to walk away from the deal if it drags on -- Wall Street analysts say they expect neither side to blink. Microsoft sees the massive merger as necessary for both to effectively compete with mutual arch-rival Google.[6] On Thursday, Microsoft hinted at another possible scenario: that the tech titan might simply walk away from the deal. "Unless we made progress with Yahoo towards an agreement by this weekend, we will reconsider our alternatives," Microsoft CFO Chris Liddell said in a conference call with analysts Thursday to discuss the company's first-quarter results. Liddell added that the company's alternatives "include taking an offer to Yahoo shareholders or to withdraw our proposal and focus on other opportunities, both organic and inorganic." Despite the rhetoric, few believe Microsoft would simply choose to walk away from its bid at this point. Following the call, analyst David Hilal of Friedman, Billings, Ramsey & Co. was unimpressed, saying he doesn't see Microsoft walking away "despite their posturing." "I think Microsoft is in a position of leverage here," he said in an interview. "If Yahoo were smart, they'd be talking to Microsoft today. It's inevitable I think that Microsoft is going to buy Yahoo, whether it's a proxy or friendly." Analyst Matt Rosoff of Directions on Microsoft, which monitors the software giant's strategy, echoed this view saying, "The threat to walk away could be more negotiation, it could be something where Microsoft walks away at first, and then comes back later with a lower bid."[9] The ultimatum followed Yahoo's repeated rejection of Microsoft's February 1 bid, saying it is too low and one that undervalues the company. Analysts are divided about what Microsoft's next move would be, with some expecting Microsoft to go direct to Yahoo shareholders to oust its board, while others believe that Microsoft could simply walk away from the deal. Microsoft CFO Chris Liddell made clear this week that the company was prepared to drop the bid. He told company employees on Friday "We put what anyone reasonable would say was an incredibly generous offer on the table to try to facilitate a speedy transaction.[10]

"In fact, we see the opposite." Liddell reiterated a threat Microsoft made three weeks ago to Yahoo's board of directors that it would consider cutting its bid, now worth about $44 billion, and take its case to Yahoo shareholders if a deal is not reached by this Saturday. "As outlined in our recent letter to the Yahoo board, unless we made progress with Yahoo towards an agreement by this weekend, we will reconsider our alternatives," Liddell said. "These alternatives clearly include taking an offer to Yahoo shareholders or to withdraw our proposal and focus on other opportunities," either from internally generated growth or growth through acquisitions, the Microsoft executive said.[11] Yahoo also has made overt maneuvers to buy itself time. On March 5, Yahoo lifted the following week's deadline for nominating directors to its board, an attempt to discourage Microsoft from launching a proxy fight to replace the current board with members willing to approve its Yahoo acquisition bid. Yahoo hasn't yet set a date for its shareholders' meeting. On March 18, Yahoo kicked off a tour to investors by dusting off a three-month-old financial plan to reinforce its contention that Yahoo is worth much more than Microsoft offered to pay for it. The plan, originally presented to Yahoo's board in December, predicts that Yahoo will double its operating cash flow over the next three years from US$1.9 billion to $3.7 billion. The plan also forecasts that, subtracting the commission that Yahoo pays to sites in its advertising network, Yahoo will generate $8.8 billion in revenue in 2010.[12]

Some analysts think Microsoft would be smart to walk away now. By turning a cold shoulder, Microsoft could position itself to return with another bid this summer in hopes of completing the acquisition without suffering through the disruption and rancor likely to erupt if Microsoft were to try to oust Yahoo's board in a risky process known as a proxy contest. This scenario could only pan out if Microsoft is correct in its belief that Yahoo is stuck in a downward spiral after steadily losing ground in the online advertising market during the past two years. Unless Yahoo can bounce back, its shares might eventually drop even lower than their $19.18 price when Microsoft made its initial bid of $31.[13] MICROSOFT says Yahoo has until Monday morning to decide what it is going to do after making it an offer it can't refuse. Microsoft Chief Financial Officer Chris Liddell told analysts that unless Vole made progress with Yahoo by this weekend, he would reconsider his options with Yahoo. While many analysts seem to have taken this to mean a hostile take over, Microsoft chairman Steve Ballmer hinted that Microsoft would be prepared to walk away from the whole situation. Liddell hinted that Microsoft might spend the cash on other acquisitions or boosting its own online business. Microsoft has made it abundantly clear on several thousand occasions that it will not increase its bid for the search outfit and Liddell moaned that Yahoo seemed to be dragging its feet at every point of the negotiations. He said that speed was of the essence, but Yahoo had been anything but speedy.[14] Microsoft CEO Ballmer must decide whether to walk away from a $42.7bn offer for Yahoo or launch a hostile takeover. Mon Apr 28 04:45:14 GMT+02:00 2008 Steve Ballmer is facing one of the biggest decisions of his career: Walk away from Microsoft Corp.' s $42.7 billion acquisition offer for Yahoo Inc. or launch the largest hostile takeover battle in tech-industry history. The choice comes after Yahoo declined to agree to a deal by the Saturday deadline set by the Microsoft's chief executive -- and after the two sides failed to make any progress in recent weeks in resolving the disagreement over price that has divided them over the last three months.[15] Mr. Blodget believes that Steve Ballmer, Microsoft's chief executive, has been beset with criticisms from shareholders and employees about the deal. "We think the complaints and concerns about the deal expressed to Steve Ballmer over the past two months have probably made him think twice about the wisdom of fighting to the death for Yahoo, even if he'll never admit that," Mr. Blodget said. "At the very least, they'll make it easier to walk way." He believes that Microsoft's language and positioning have shifted recently in its public statements from threats to resignation and the shift is not likely a negotiating tactic. Yahoo's Jerry Yang seems firm in his determination to stay independent of Microsoft, even if means that Yahoo's share price will fall well below Microsoft's $31 (U.S.) takeover offer. "Jerry has demonstrated that he's not easily spooked, and he has to have been prepared for the possibility that Microsoft would walk," Mr. Blodget said. "In fact, we think Jerry would see this as a victory (which it would be) even if many Yahoo shareholders do not."[16]

Google paid $90m in a settlement in 2006. Microsoft's deadline for Yahoo to come to the negotiating table to discuss its $45bn (£22.7bn) takeover bid came and went on Saturday with no movement from either side. Steve Ballmer, Microsoft's chief executive, was last night examining whether to go ahead with his threat to take the offer directly to Yahoo shareholders by launching an attempt to oust its board.[8]

SAN FRANCISCO (AFP) — A Microsoft deadline for Internet service company Yahoo to accept its 44.6 billion-dollar (28.5 billion-euro) acquisition offer expired at midnight Saturday, setting the stage for a hostile takeover bid by the software giant. The expiration of the Sunday 0700 GMT deadline -- without comment from either side -- was likely to pave the way for an ugly proxy battle -- a fight by Microsoft for a vote by Yahoo shareholders to place pro-Microsoft officials on its board of directors.[5] Yahoo did not respond to a request for comment about the deadline, but the company has said it would consider Microsoft's offer if the software giant upped the ante, which is unlikely to happen. Microsoft declined to comment for this story. "Although Microsoft could live without Yahoo, its perception is that acquiring Yahoo would put it in a much better position to compete against Google," said Keith Hylton, a professor at the Boston University School of Law. "So while they could live without Yahoo, it's an asset they think is pretty valuable." While Microsoft is backpedaling a bit on its threat to take its case directly to Yahoo's shareholders, Hylton said it's his guess that Microsoft is serious about acquiring Yahoo as soon as possible and, if all else fails, every option is on the table, including a hostile takeover. "I don't think this is something they're just going to walk away from at this stage, although there may be a stage where they walk away, like if the takeover takes too long or if there are regulatory obstacles that stand in the way," Hylton said.[1]

Microsoft noted that revenue for the division had grown 44 percent, however. Since January, the two companies have sought to improve their negotiating positions. Yahoo recently announced a potentially valuable partnership with Google in its attempt to fend off Microsoft. It was unclear how Microsoft's earnings report will affect the negotiations, analysts said. Microsoft chief executive Steve Ballmer has alternately signaled his willingness to walk away from the deal or to force it by initiating a proxy battle for a new slate of Yahoo directors. The company has set a deadline of Saturday for Yahoo to accept its offer.[17] Given Yahoo's refusal to enter into formal negotiations, Friedland now estimates there was a 20% chance that the deal falls apart. Clayton Moran, analyst at Stanford Group, said there was a growing likelihood that Microsoft may publicly drop its bid to acquire Yahoo. "There is a good chance that Microsoft views a proxy fight as long, costly and potentially harmful to business," he said. Brent Thill, analyst at Citigroup, said in a note that he believed Microsoft was still committed to completing the transaction and was unlikely to walk away. "We believe there are two outcomes - a higher likelihood of the deal going fully hostile at the beginning of next week or Yahoo ! accepting a slightly sweetened offer above the current $31 /share price," he said.[18] Microsoft's $31 -a-share offer in a stock-and-cash deal initially valued at $44.6 billion has been rejected by Yahoo's board as too low. While Microsoft has insisted that it won't raise its price, some analysts still believe it will sweeten the package just to get it done. "If they can make it friendly, the bid goes a couple of dollars higher," said analyst Brent Thill of Citigroup. Microsoft's strong hint that it may drop its Yahoo bid -- and the company's pronouncement that it was prepared to build it online business organically -- also added fuel to the debate on whether the deal makes sense for the tech giant in the first place.[9] Yahoo CEO Jerry Yang has repeatedly spurned the $31-a-share bid, saying Yahoo'''s financial performance and No. 2 rank in the U.S. Internet search market merit a higher price. The current situation is that Microsoft is no closer to buying Yahoo than when it made its $44.6 billion bid nearly three months ago, leaving the software maker in a quandary over whether the deal is still worth pursuing. The impasse has left most analysts predicting Microsoft will either sweeten its offer or attempt to replace Yahoo'''s board with a slate of directors who will embrace a takeover.[19] Yahoo's board of directors has rejected Microsoft's offer, initially valued at $44.6 billion, saying it undervalues the beleaguered Internet portal. Microsoft has said it considers its offer full and fair and that it does not intend to raise its price. Although some analysts had speculated that Microsoft was prepared to raise its price to seal deal, some also believed there is pressure on the company to stand by its current offer. Liddell appeared to underscore this in the call, saying, "We intend to remain disciplined in our approach." He also pointed to the speculation that Microsoft should raise its offer "simply because we can afford to," and dismissed it as not an argument he finds acceptable.[20]

The terms could differ from what Microsoft currently has on the table, which proposes a half-stock, half-cash transaction. In Ballmer's letter, he suggested a hostile takeover could reduce the value of Yahoo to Microsoft, and, presumably, what he'd be willing to pay. Yahoo's corporate bylaws include a "poison pill," provisions to prevent an acquirer from gaining control in this manner, but if enough shareholders formally express interest in selling, it would put tremendous pressure on Yahoo's board of directors. Microsoft would likely coordinate the exchange offer with a proxy fight a campaign to replace the Yahoo board with its own hand-picked candidates. They would stand for election at Yahoo's annual meeting, which has yet to be scheduled but must take place by July 12. If a majority of Microsoft's candidates were elected, they could approve the takeover proposal, perhaps at a lower price. Scott Keller, a founder and analyst at Deal Analytics, called this a "much more potent weapon."[21] In an open letter to the Yahoo board of directors on April 5, Microsoft CEO Steve Ballmer gave the Internet giant three weeks to accept the USD 31 dollar per share bid - an offer which expired yesterday - or face a hostile takeover. He also warned that Microsoft could drop its bid price.[10] Microsoft Chief Executive Steve Ballmer threatened three weeks ago to launch a hostile takeover of Yahoo if the companies had not concluded an agreement by today. Chief Financial Officer Chris Liddell softened the mandate slightly: Microsoft must "make progress with Yahoo towards an agreement by this weekend," or it will consider alternatives including a hostile bid or dropping the deal. Barring successful eleventh-hour negotiations, Liddell said Microsoft will make its move next week.[21] Microsoft Chief Financial Officer Chris Liddell promised Thursday that the software giant will provide an update on its bid for struggling portal Yahoo! next week. However, the Microsoft crew is probably planning to devote an entire weekend to making Yahoo!'s management team sweat over the prospect of Microsoft either dropping its bid--crushing Yahoo!'s stock price--or launching an effort to oust Yahoo!'s board of directors to make the deal happen. A hostile bid would expose Microsoft to a flurry of criticism as Yahoo! and Microsoft competitors, such as Google (nasdaq: GOOG - news - people ), take their shots at the bid.[22]

"Speed is of the essence for the deal to make sense," Chief Financial Officer Chris Liddell said on a conference call on Thursday. If no deal is reached by this weekend, Microsoft will reconsider its offer and reveal new plans next week, he said. "Unfortunately, the transaction has been anything but speedy and has been characterized by what would appear to be unrealistic expectations of value," he said of Yahoo's moves to frustrate Microsoft's unsolicited merger proposition. Microsoft sees Yahoo as a way to compete with arch-rival Google Inc in the Internet search and advertising arena, but company executives have repeatedly said they have limits to what they are willing to pay to get a deal done.[11] Ballmer, responding to questions about a possible outcome, said "we'll see" what the Yahoo board decides to do about the bid. If no deal is reached by this weekend, Microsoft may explore other options, such as trying to oust Yahoo'''s board or walking away from the offer, Chief Financial Officer Chris Liddell said Friday.[19] Now Microsoft CFO Chris Liddell joins issue with CEO Steve Ballmer in ruling out a higher bid for Yahoo, even as he stressed on the importance of rapidity in decision-making. "Speed is of the essence for the deal to make sense,'' he said, and added that if no deal is reached by this weekend, Microsoft will reconsider its offer and reveal new plans next week. "Unfortunately, the transaction has been anything but speedy and has been characterised by what would appear to be unrealistic expectations of value," he said of Yahoo's moves to frustrate Microsoft's unsolicited merger proposition. He was speaking on a conference call that primarily focused on Microsoft's quarterly results.[3]

All eyes were on Microsoft and Yahoo as a deadline imposed by Microsoft CEO Steve Ballmer approached. Ballmer previously gave Yahoo until Saturday to come to terms over Microsoft's original $44.6 billion acquisition offer, but based on comments Thursday by Chris Liddell, Microsoft's chief financial officer, it doesn't appear that the company will reveal its plans this weekend.[23] Chris Liddell, Microsoft's chief financial officer, vowed to be disciplined in spending on any megamerger and rejected suggestions that the company sweeten its offer simply because it can afford to do so. He insisted that the proposal, originally valued at $44.6 billion, is extremely generous and suggested that Yahoo is taking a risk by rejecting the marriage. "Speed is of the essence," he said.[7]

Oracle Corp. followed a similar playbook last year to acquire BEA Systems Inc. If Microsoft pushes ahead with its proxy fight, its challenge will be in determining at what price it should pursue an exchange offer. The value of its bid has declined as its share price has fallen 8% since Jan. 31, when it offered Yahoo a combination of cash and stock then valued at $31 a share, or $44.6 billion. Microsoft's stock took another hit after the company disappointed investors with its earnings outlook; as a result, the bid value stood at $29.68 a share as of 4 p.m. Friday.[15] Microsoft offered $31 per share in a late January bid valued at $44.6 billion, but Yahoo continues to maintain that the company is worth more than that. Last week, co-founder Jerry Yang cited its first quarter earnings to bolster the case for a bigger bid, but Microsoft didn't see it the same way.[24]

Yahoo also tested an advertising partnership with Google, but the deal has come under scrutiny by federal regulators, who have antitrust concerns. Lindsay said that coming up with a deal is imperative for Yahoo if its management wants to keep the company independent. If shareholders see no change, he said, they undoubtedly will side with Microsoft at Yahoo's annual meeting, which is as yet unscheduled, but could be held in July or shortly thereafter. Another option that Microsoft executives increasingly mentioned last week is to drop their offer for Yahoo, originally priced at $31 per share, a 62 percent premium.[25] First quarter sales of Google, which handled six times more queries in the U.S last month, grew substantially. Majority of Yahoo shareholders are likely to accept the $31 offer, forcing Yahoo to seek alternative options to raise its share value in order to avoid loosing a proxy fight, according to a top official at RCM Capital Management that holds stake in both Microsoft and Yahoo. Microsoft might also evaluate other options like canceling the offer and developing its Web business with alternative investments and partnerships, besides pursing a proxy fight, revealed sources close to the company.[26]

Ballmer, asked whether Microsoft had decided to locate in Mons because Google was there, said it had not. He reiterated Microsoft's plan to go to Yahoo shareholders if that company turned down its takeover offer of $43.6 billion. "We've sent them a letter that says, 'it's a good price, please let us know. If you don't let us know, maybe your shareholders will think it's a good price."'[27] Microsoft responded by pointing to comments Liddell made on Thursday during Microsoft's earnings announcement. "Unless we make progress with Yahoo towards an agreement by this weekend, we will reconsider our alternatives. We will provide updates as appropriate next week, these alternatives clearly including taking an offer to the Yahoo shareholders, or to withdraw our proposal and focus on other opportunities, both organic and inorganic," Liddell said then. Citing anonymous sources, The Wall Street Journal reported Sunday that Microsoft, Yahoo and their advisers have held talks in recent weeks but didn't achieve enough progress to hammer out a deal by Saturday. The process has clearly been frustrating for Microsoft's management, who have maintained that their offer is fair and that they don't see a reason to revise it. Ballmer and his team have shown signs of getting impatient with the slow progress, not surprising considering Microsoft's urgency at boosting its underperforming Internet business and competing better against Google.[12] "With or without a Yahoo combination, Microsoft is focused on the online advertising market," Liddell said. Microsoft made its offer for Yahoo on February 1 in a quest to combine the firms' resources to gain ground on Internet search king Google. Liddell's comments echo those made by Microsoft chief executive Steve Ballmer during a press event in Morocco earlier in the week.[28] Yahoo has said Microsoft's offer undervalues the Internet company's business. Microsoft Chief Executive Steve Ballmer, appearing in various European cities this week, repeatedly insisted that the company's offer, currently valued at $42.7 billion, is fair and that he doesn't intend to raise it.[18] In an open letter to the Yahoo board of directors on April 5, Microsoft chief executive Steve Ballmer gave the Internet pioneer three weeks to accept the 31 dollars-a-share takeover offer or face a proxy fight.[5] April 27 (Bloomberg) -- Microsoft Corp. Chief Executive Officer Steve Ballmer may start a fight to oust Yahoo! Inc.' s board and pave the way for a takeover, after the Internet company let his deadline pass without agreeing to a deal.[29]

Yahoo is "basically managing (the situation) by passive aggression at the minute," said Jeffrey Lindsay, an analyst at Sanford C. Bernstein & Co. in New York. "We don't think they're going to do anything. We think the deadline will expire, and Microsoft will basically make good on their ultimatum to nominate their slate of directors" for Yahoo's board. That option, turning the bid into a hostile takeover, has been the alternative that many in the industry have assumed Microsoft would choose, if it can't reach a friendly Yahoo deal. Another raised by Liddell is that Microsoft could "withdraw our proposal and focus on other opportunities, both organic and inorganic."[23] A decision is likely to emerge in the next few days, with Yahoo facing a weekend deadline to accept the offer. Although the deadline expires Saturday, Microsoft has indicated it probably won't reveal its next move until early next week. The tense mating dance is at a standstill because Yahoo's board has repeatedly said it won't sell to Microsoft for less than $45 billion, even though the bid hoisted its stock shortly after it hit a four-year low in late January. The impasse has left most analysts predicting Microsoft will either sweeten its offer or attempt to replace Yahoo's board with a slate of directors who will embrace a takeover.[13] "The idea we should increase our bid just because we can afford to is not one that I favour. Unless we make progress with the Yahoo board by this weekend we will explore our alternatives. Microsoft has given Yahoo's board of directors until April 26 to accept its unsolicited $44.6 billion offer. Microsoft's options include withdrawing its offer or taking it directly to shareholders in what would be considered a "hostile" proxy battle.[28] Yahoo, the Sunnyvale Internet icon, has a 13-year history as an independent company, but recently has fallen into a financial slump. Microsoft, the Redmond, Wash., software-maker, is convinced that combining forces will bolster its online business, which trails far behind industry juggernaut Google Inc. Among Microsoft's options is to take its bid for Yahoo hostile by asking the portal's shareholders to replace Yahoo's board with a more merger-friendly slate of directors. Microsoft has said that if it chooses this route, called a proxy contest, it might lower its price for Yahoo to reflect the damage a fight might cause.[25]

"We have an extremely talented engineering team and a great portfolio," Liddell said. He said the company was prepared to pursue other investments, including growing its online business organically, instead of through huge acquisitions. Microsoft had given the Yahoo board until the end of this week to sign a deal or it will explore other options, including a possible proxy war or a lower bid price.[20] SAN FRANCISCO (Dow Jones) -- Microsoft Corp. on Thursday repeated its threat to wage a proxy war to take over Yahoo Inc., but also sent a strong signal that it may also walk away from the increasingly bitter merger battle. In a conference call to discuss the company's third fiscal quarter results, Microsoft (MSFT) CFO Chris Liddell said the company still hopes to complete its proposed acquisition of Yahoo (YHOO), but he also said repeatedly that the software giant was prepared to pursue an "organic" approach to growing its online business. "We have been clear that speed is of the essence to this deal," he said in the call with analysts.[20] Software analyst Heather Bellini is of the opinion that even if Microsoft tried to lower the value of the deal or walk away from the deal, it is expected to eventually come back and raise it in order to consummate the transaction in a friendly manner, reported Bloomberg. Last week, Yahoo reported a significant increase in its first quarter profit to $542 million or $0.37 per share from $142 million or $0.10 per share last year, helped mainly by a one-time gain from the IPO of Alibaba.com. The company reported a 2.6% fall in adjusted net income and reaffirmed its revenue outlook for 2008.[26] Yang has said repeatedly that Yahoo is worth more, citing investments in Asia, the company's No. 2 position in Internet searches and potential cost savings of the deal. Though Microsoft officials said this week that they won't raise the offer, analysts said it's still possible. "Ultimately, we view this as posturing,'' Heather Bellini, an analyst at UBS AG in New York, wrote in a note April 25. "Even if Microsoft tried to lower the value of the deal or walk away, we would expect them to eventually come back and raise it in order to consummate the transaction in a friendly manner,'' said Bellini, Institutional Investor magazine's top- ranked software analyst.[29] With Microsoft's self-imposed deadline set to expire Saturday, Wall Street was mixed on whether the software giant would revise its offer, go hostile at a lower price or perhaps even walk away from its offer for the struggling Internet company. Microsoft three weeks ago said it was prepared to launch a proxy battle for Yahoo if the two companies did not make progress toward an agreement by this weekend. Microsoft executives added a new twist this week, notably commenting that they were prepared to walk away from the offer and pursue other options if Yahoo didn't quickly come to the table.[18]

People with the knowledge of company's tactics said Microsoft did not expect to reach a deal before the Saturday deadline it set for Yahoo to accept the unsolicited bid, so the software giant intends to launch a proxy fight next week and nominate candidates for Yahoo's board. Another source informed the news agency that the Justice Department was mostly apprehensive about the possibility of a longer-term deal between the No. 1 and No. 2 search-engine companies and opened an inquiry into matter.[30] On April 5, Microsoft, clearly impatient, threatened Yahoo's board of directors with a proxy battle if it wouldn't agree to a buy-out in the next three weeks. That's the deadline that lapsed on Saturday. "The focus will be on Microsoft tomorrow to make some statement about its intentions," said industry analyst Greg Sterling from Sterling Market Intelligence. While there is still a reasonable chance that Microsoft will launch a proxy fight, it also seems much more likely than it did three weeks ago that Microsoft will drop its bid, Sterling said. Microsoft's management was clearly expecting a much smoother acquisition process, he said. "Microsoft's tone during the initial call was that this was pretty much 'fait accompli' and that they were already looking past the deal towards the integration process," Sterling said.[12]

" $45 billion is a lot of money to spend, and then after that you're going to spend who knows how many years just integrating the platforms, it's going to be a mess." Moran of Stanford Group said that in its bid to expand its online presence, Microsoft could explore other deals involving such players as America Online, CNet Networks and Facebook. "Although Yahoo has the greatest scale in both search and display, Microsoft could look to build through multiple acquisitions at less cost and via friendlier transactions," Moran wrote. Other analysts see a merger with Yahoo as the best option for Microsoft. Thill of Citigroup said that despite short-term headaches, Microsoft may be thinking long-term as it maps out a strategy in its competition with the Web juggernaut that is Google (GOOG). "They're trying to catch a runaway freight train," he said.[9] In an effort to defend the unsolicited bid from Microsoft, Yahoo approached Time Warner Inc.' s AOL and News Corp. for alternative proposals. News Corp. indicated its preference for a joint bid with Microsoft. Certain market analysts still highlight the possibility of Microsoft increasing the offer price, though the company officials continue to maintain that they would not raise the price. Google recently reached a trial deal with Yahoo to put its AdSense search results on Yahoo's Web site.[26] "We still believe (Microsoft) is committed to completing the transaction and is unlikely to walk away," Citigroup analyst Brent Thill wrote in a Friday note. McAdams Wright Ragen analyst Sid Parakh said he can't envision Microsoft raising its offer, especially since Yahoo's management hasn't proven its strategy will boost the company's stock price above $30 on its own. Microsoft's current bid is "already a stretch, and I don't see any reason for them to really bid against themselves," Parakh said. Yahoo could try to extract a higher bid by farming out some of the advertising on its Web site to Google.[13] While having Yahoo would accelerate Microsoft's efforts to gain a bigger slice of the online advertising market, forecast to reach $80 billion by 2010, Liddell said the company has a strategy to do so without the Internet giant. If it walks away, Microsoft would keep investing in its own online services, including Internet search and e-mail; improving tools for digital advertisers and publishers; and increasing use of its products. Microsoft will also continue to buy companies that would help in these areas, Liddell said. Likelihood: Tech pundit Henry Blodget wrote Friday that he puts the chance of Microsoft dropping its bid at 60 percent. Others say Microsoft is committed. "I don't think they'll quit. I think they've got too much invested to quit, and frankly nothing's happened that they shouldn't have anticipated going in," said Philip Bromiley, professor of business strategy at University of California, Irvine. Parakh gives this option about a 10 percent probability.[21] Losses in the company's online division - which it hopes to merge with Yahoo - grew to $228 million from $171 million in the same period last year. Liddell said that, contrary to the conventional view on Wall Street that Microsoft needs the Yahoo acquisition to jumpstart its struggling bid to compete with Google Inc. (GOOG) in the online advertising market, the Redmond, Wash. company was prepared to explore other paths.[20]

Last week, Liddell lamented that while Microsoft has always believed "speed is of the essence," Yahoo's response "has been anything but speedy" ( Daily Variety, April 25). He promised an update "as appropriate" on the company's stance this week, citing a shareholder offer and withdrawal to focus on other opportunities as possibilities. Either way, execs made clear, the company plans to beef up its bid for a bigger share of online advertising coin.[24] While Yahoo has repeatedly rejected the offer, insisting Microsoft's $31-a-share bid is too low, Microsoft's Chief Financial Officer Chris Liddell yesterday chided Yahoo for harboring "unrealistic expectations of value." He noted that Yahoo's share in the lucrative Web search market has been declining against Google and that its profit has dropped. Of the various arguments that have been made for raising Microsoft's purchase price, he said, " 'just because we can afford to' is not one I favor."[17] Despite the poor showing on the profits and revenue front, Microsoft's management was confident the figures signalled an overall trend of growth in the business. "Our broad span across geographies, product categories and customer segments is a tremendous asset and supports our outlook for double-digit revenue, operating income and earnings per share growth for this fiscal year and also for fiscal year 2009," said Chris Liddell, chief financial officer at Microsoft. Liddell may be smiling outwardly but inside the Microsoft hierarchy must surely want to add another weapon to its arsenal. With Yahoo so far ignoring the Redmond-based firm's advances it may be time for Microsoft to up its offer or elect to move on and find a new toy. If the comments from the IT giant's management are to be believed then the latter is an option. "Unless we make progress with Yahoo towards an agreement by this weekend, we will reconsider our alternatives," Liddell told a conference call with journalists.[31] Microsoft disappointed investors looking for stellar earnings with weak Windows software sales and a below-target profit forecast. The software giant also pressed its attack on takeover target Yahoo, saying time was of the essence and that the faded Web star needed to forgo "unrealistic expectations" that it is worth more than Microsoft's ''22 billion offer. Chief Financial Officer Chris Liddell acknowledged a weak U.S. economy, but said a slowdown in its domestic market had not hampered Microsoft's diverse set of businesses, which bring in more than 60 per cent of its revenue from overseas.[32]

"We think we can accelerate our strategy by buying Yahoo and we will pay what makes sense for us to pay for our shareholders." In an open letter to the Yahoo board of directors, Ballmer accused the company of avoiding serious negotiations over its bid and warned that delays could result in a less attractive offer. Liddell's remarks came as Microsoft reported that its profits slipped to 4.38 billion dollars in the first three months of the year despite revenues rising slightly to 14.45 billion dollars.[33] Mr. Ballmer vowed in an April 5 letter "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." Mr. Ballmer faces opposition to the deal in his own ranks: Executives at several Microsoft divisions oppose the bid on grounds it will divert needed resources and attention from other challenges the company faces, said people familiar with the company. That sentiment is heightened as Microsoft heads into its annual budgeting season, said people familiar with the company. There was no direct contact between the two sides this past weekend and people close to both camps said they were preparing for the next stage of battle.[15] No deal has been struck or announced. Microsoft gave an ultimatum to Yahoo in a letter sent on April 5, stating that if the two companies will not begin negotiations on a definitive agreement within the next three weeks, they will take the case directly to the shareholders and start a proxy contest to elect a slate of director for the Yahoo Board.[34]

The threat puts intense pressure on Yahoo's board from shareholders, because the value of the stock would likely plummet. Microsoft executives said last week that they could focus on reinvigorating their online business without Yahoo. Dropping the bid might also be a ploy; they could come back later, presumably after Yahoo's board and its shareholders sweated it out and finally saw the wisdom of a deal.[25] If Microsoft really wants Yahoo and Yahoo's board of directors won't budge it may try to gain control through a hostile takeover. This probably wouldn't involve an invasion of Yahoo's Sunnyvale, Calif., headquarters, but it's about as close as it comes in the business world. The attack would be two-pronged: Microsoft would invite Yahoo shareholders to exchange their stock in the company for a combination of cash and Microsoft stock. This is called an exchange offer (when the payoff is in stock) or a tender offer (when the payoff is in cash).[21] Now Microsoft must decide whether to pursue a hostile takeover via a proxy fight or to drop the bid and seek other acquisition alternatives. All along, Microsoft's management had indicated strongly that they would pursue Yahoo via all available options, including the hostile route of ousting the current board by proposing its own slate of director candidates at the next Yahoo shareholders' meeting.[12]

Now that its friendly offer for Yahoo expired on Saturday, Microsoft has two options: launch a hostile takeover attempt or withdraw and seek other ways to grow its online advertising biz. The tech giant has given every indication it will go the hostile route and take its case directly to Yahoo shareholders. Under this scenario, there is no guarantee how much it might pay for Yahoo.[24] Keller called it a moderate possibility. Sid Parakh, technology analyst with McAdams Wright Ragen, said he thinks Microsoft will attempt a hostile takeover likely involving a lower price. Outcome: This would kick off a long, acrimonious few months as the companies step up campaigns to sway Yahoo investor opinion before the shareholder meeting. It could continue distracting executive and employee attention at both companies from their efforts to catch runaway online advertising leader Google the impetus for the combination in the first place.[21]

Yahoo also has been exploring a possible merger with the online operations of Time Warner Inc.' s AOL, but most analysts view that as a weaker alternative to a Microsoft takeover. As it stands now, Yahoo's first-quarter revenue growth of 9 percent is far behind both Google's and Microsoft's online services division, which climbed 42 percent and 40 percent, respectively. That's just one reason Garrity believes Ballmer and Liddell are realizing that Microsoft doesn't need Yahoo at any price. "Sometimes the best deals are the ones that aren't done," he said. AP Technology Writer Jessica Mintz in Seattle contributed to this story.[13] The company's developers and analysts expected revenues of at least $4.8 billion and the reports showed $4.7 billion. Last month, Microsoft's Chief Software Architect Ray Ozzie said the company is not in a hurry to merge its technology platform to that of Yahoo. Ozzie commented in an interview with the Financial Times that 'technology companies, if they dive in and just smash things together for smashing them together's sake, it's reckless, it's just simply reckless,' adding that Yahoo has its own technologies and corporate culture. Ozzie declared himself optimistic that Microsoft will be able to achieve its main goals if the deal with Yahoo will materialize, as long as they will focus on giving users and advertisers the same experience, rather than rushing into getting financial benefits from the deal.[34] Microsoft, the world's biggest software maker, can't afford to let Yahoo go, said Sachin Shah, an analyst for ICAP Securities in Jersey City, New Jersey. The company has spent billions creating a Web search engine and technology to sell ads, and buying Internet companies such as AQuantive Inc. Acquiring Yahoo would give it the No. 2 spot in the $41 billion online ad market. "Microsoft does need Yahoo,'' said Shah, a merger- arbitrage analyst, in an interview with Bloomberg Television this week. "If they didn't, they would have walked away a long time ago.''[29] Just last fall, Oracle Corp. withdrew a $6.7 billion bid for rival business software maker BEA Systems Inc. after being spurned and then wrapped up the takeover for $8.5 billion three months later. Other analysts remain convinced Microsoft will either raise its bid or launch a proxy contest because it needs Yahoo's franchise to mount a more serious challenge Google Inc.' s dominance of the Internet's search and advertising market.[13] Washington -- Yahoo Inc. that is still facing the heat of Microsoft's unsolicited buyout offer has attracted the attention of many for carrying out a two-week experiment with outsourcing some of its Web-search ads to Google Inc. has drawn scrutiny from antitrust regulators, the companies said Wednesday. Interestingly, both Yahoo and Google said Wednesday that they notified the Justice Department before the start of a two-week joint search advertising test, which was intended to discover how a possible collaboration could help Yahoo thwart Microsoft Corp.' s takeover bid. "The two Internet giants also said we had informed the Justice Department before we launched the test and we have been responsive to their questions about it," said a Google spokesman Adam Kovacevich, in an e-mail. Yahoo further supported its claim saying "Yahoo proactively kept the Department of Justice informed of its intentions to conduct this limited test with Google and have provided information to DOJ on the nature of the test," said Yahoo spokeswoman Tracy Schmaler in an e-mail.[30] The source, speaking on condition of anonymity, said the regulators were concerned about a telephone call from Google CEO Eric Schmidt to Yahoo CEO Jerry Yang to offer help in fending off Microsoft Corp.' s $44.6 billion takeover bid. Microsoft is engaged in striking its next move in the buyout fight for Yahoo.[30]

Microsoft Corp. shares fell more than 6 percent Friday, after mixed quarterly results, as a key deadline loomed in the company's Yahoo takeover bid. Shares of the company closed at $29.83, a day after Microsoft beat Wall Street's overall profit expectations but reported a larger-than-expected revenue shortfall in its PC Windows business.[23] Yahoo Inc faces a critical week that could decide whether the pioneering Web company can remain independent or must surrender to an unsolicited takeover by Microsoft Corp. Yahoo is racing to forge a credible alternative that lets it stay independent or at least forces Microsoft to raise its $31 a share cash-and-stock bid, now valued at $42.8 billion.[6]

Microsoft officials were also reportedly preparing a response to Yahoo that could come out Monday or Tuesday. Speaking in Madrid last week, Ballmer reiterated that his company saw no reason to raise its bid for Yahoo above the current price, which now values Yahoo at $29.68 a share. "This is crunch time for both of them," said Crawford Del Prete, an analyst with technology research firm IDC. Del Prete said each side in likely weighing their options ahead of what could be a flurry of activity when the market opens Monday.[35] Yahoo's shares at that time were trading at $26.80 on the Nasdaq Stock Market. In his letter, Mr. Ballmer suggested Microsoft might offer less than the original bid if Yahoo didn't agree to a friendly deal.[15] Some analysts don't see how Yahoo can make the economics of an alternate deal work. Internet stock valuations have suffered from a weak economy this year and Yahoo share's price, currently above $28, could fall below its $19 level of late January without the support of Microsoft's standing offer, they argue. Squali says if Yahoo does a half decent job in its quarterly results, it could support a share price in the upper $20s.[6] Microsoft's profit fell 11 per cent to ''2.2 billion, in the March quarter on revenue of ''7.3 billion. Expectations were running high for the latest Microsoft earnings, since it had posted two straight quarters of standout results, but its shares fell five per cent in after-hours trade. Microsoft, which has set a Saturday deadline for Yahoo to reach a deal, said it would consider its alternatives including going hostile or withdrawing its offer if the two sides don't make progress toward an agreement by this weekend.[32] Profit held virtually steady at $141.2 million excluding a non-cash gain, while revenue rose 9% to $1.82 billion. Google, meanwhile, surprised the doubters with the strength of its last quarter as profit jumped 31% to $1.31 billion and revenue shot up 42% to $5.19 billion. The Yahoo bid has attracted its share of detractors, and it's not clear how long Microsoft will be willing to pursue the fight.[24] Microsoft's mission to take over the Yahoo Inc Company can be better understood now as reports show a below the target profit and a small decrease in share prices. Apparently, Microsoft's core business, the globally known Windows, is beginning to slow down, bringing revenues in its client unit to $4 billion from last year's $5.3 billion.[34]

The drama began when Microsoft stunned the corporate world in February when it unveiled a blockbuster bid to buy Yahoo for $31 a share in a stock-and-cash deal initially valued at $44.6 billion.[35] SAN FRANCISCO (AP) — Microsoft Corp. is no closer to buying Yahoo Inc. than when it made its $44.6 billion bid nearly three months ago, leaving the software maker in a quandary over whether the deal is still worth pursuing.[13] SAN FRANCISCO: Microsoft's chief financial officer said that the U.S. software giant is standing by its $44.6 billion bid for Yahoo and the April 26 deadline it gave the struggling Internet pioneer to decide.[28] Microsoft chief exec Steve Ballmer said Friday the company'''s $44.6 billion bid for Yahoo is "quite generous."[19] Ballmer gave Yahoo an ultimatum to accept a $44.6 billion bid by yesterday. To crack Google Inc.' s dominance of the Internet advertising market, Microsoft is looking to handle more Web searches, sell advertisements with more graphics and videos, and be able to target campaigns and track their success.[29] In the meantime, Google would no doubt seek to capitalize on the internal turmoil within Microsoft and Yahoo by trying to poach clients and valuable employees. As soon as Microsoft announced its bid for Yahoo on Feb. 1 -- valued at US$44.6 billion at the time -- Yahoo's management began seeking and considering alternatives, while its stock began to rise from the latest pre-bid price of $19.18.[12]

Microsoft Corp.' s unsolicited bid to acquire Yahoo Inc. is still up in the air, but maybe it's inevitable in the eyes of Bill Gates. During an appearance Friday afternoon at the University of Washington, the Microsoft chairman at one point referred to his company as if it were second in Internet search. Microsoft is in third place in search market share -- although it would move into second place, still well behind Google, if it's able to bring Yahoo into its fold. "Often if you're No. 2 -- and in this case, a distant No. 2 -- you can try harder, so to speak, and try out new things that are quite different," Gates said when discussing Microsoft's technological ambitions in Internet search.[36] A common negotiating tactic, it nevertheless ratchets up the pressure on Yahoo's board to reach a deal because the company's shares would subsequently sink, according to analysts. Most analysts are still betting on Microsoft prevailing with its takeover bid. Although Microsoft won't say it publicly, analysts generally agree that the company will end up sweetening its bid to get the deal done.[37] The threats are also a common negotiating tactic intended to pressure a reluctant company to acquiesce to a takeover bid. Yahoo's board unanimously rejected Microsoft's overture early in the merger dance, saying that it substantially undervalued the company, given its big brand name, international reach and hundreds of millions of users. Last week, Yahoo CEO Jerry Yang said he's not opposed to a merger, but that he would only agree to one at a higher price.[25]

Microsoft (MSFT) first issued its bid for Yahoo on Feb. 1. The Web portal rejected the offer as undervaluing its business and has refused to entertain serious discussions with the software titan. An ultimatum issued by Microsoft CEO Steve Ballmer earlier this month gave the Yahoo (YHOO) board of directors three weeks to negotiate a merger. That deadline expires Saturday.[9] Microsoft CEO Steve Ballmer called the offer price `quite generous'. Microsoft's fight for Yahoo became aggressive at a time when the Windows-maker has been recording losses in its web business and decline in the sales of the Windows software. By adding Yahoo into its domain, Microsoft expects to put an end to the Google's supremacy in the Internet search services market.[26]

Jeffrey Lindsay, an analyst with Sanford Bernstein & Co., said that Microsoft CEO Steve Ballmer is likely to start a hostile bid, regardless. "Ballmer will make good on his ultimatum," Lindsay said. "I don't think he would like to pick up a reputation for not following through." Yahoo has been busy trying to cobble together an alternative to a Microsoft takeover, including holding discussions with Time Warner Inc. and News Corp. about taking control of their Internet properties.[25] Time'''s up. If you recall a news development of three weeks past, Microsoft'''s CEO Steve Ballmer essentially gave Jerry Yang and the Yahoo board 21 days to decide whether they wish to deal with the takeover attempt cordially or fought to a bloody.[38]

"We have been clear that speed is of the essence for the deal to make sense." Yahoo CEO Jerry Yang turned down Microsoft's advances, rejecting the $31-a-share bid and approaching rivals such as Time Warner Inc.' s AOL. Ballmer may begin a proxy contest to oust Sunnyvale, California-based Yahoo's board as soon as this weekend.[4] Ballmer's ultimatum, setting yesterday as a deadline, presented three options: either Yahoo! begins talking; Microsoft will make a hostile bid, going direct to shareholders; or even call it all off if Yahoo! maintains "unrealistic expectations". A spokesman reiterated the threat that Microsoft will consider cutting its bid, now worth about $44 billion, if a deal wasn't in the bag over the weekend.[39]

Analysts agree that Yahoo shares would plummet if Microsoft were to walk away. They were mixed, though, on whether Microsoft's threat to walk away was merely designed to put pressure on Yahoo's management, or whether they reflected growing frustration and resignation about the prospects for a friendly deal. "It's unlikely that Microsoft truly wants to walk away, and it wouldn't surprise me if Microsoft were to drop its bid a little (if it launched a hostile attempt)," Cowen & Co. analyst Jim Friedland said.[18]

The deadline was due to expire on Saturday but by close of trade on Friday there had been no further statement from Microsoft. Analysts now predict that the firm will either improve its offer, or try to replace Yahoo's board. This second option would entail what is called a proxy battle - effectively embarking on a hostile bid.[40] "The idea we should increase our bid just because we can afford to is not one that I favor. Unless we make progress with the Yahoo board by this weekend we will explore our alternatives." Microsoft's options include withdrawing its offer or taking it directly to shareholders in what would be considered a "hostile" proxy battle.[33] A lowered price might antagonize the Yahoo shareholders to whom Microsoft would be appealing in the proxy fight. Those without doubt sound like fighting words, and Ballmer is all set to take a lower offer directly to shareholders if Yahoo's board would not agree to the existing terms. It is distinctive Microsoft tactics, whenever Microsoft gets behind in a hot technology, it buys its way into the market-often with hostile tactics.[30] Ballmer then reiterated the company's aim to take the plan directly to shareholders should Yahoo fail to warm up to the offer by Saturday's deadline. Microsoft, which set the April 26 deadline earlier this month, hasn't been sitting by idly waiting for Yahoo to capitulate; it is said to have assembled a slate of candidates for the Yahoo board in the event of a proxy fight.[24]

"Unfortunately, the transaction has been anything but speedy and has been characterised by unrealistic expectations of value." In the last few days, Chief Executive Steve Ballmer has reiterated Microsoft has no plans to raise its offer, which the Yahoo board has spurned, saying it significantly undervalues the company.[32] The architects of Microsoft's bid — Chief Executive Steve Ballmer and Chief Financial Officer Chris Liddell — have been signaling the Redmond, Wash. -based company might abandon the bid and leave Sunnyvale-based Yahoo twisting in the wind.[13] A day earlier Chris Liddell, Microsoft's chief financial officer, said: "With or without a Yahoo combination, Microsoft is focused on the online advertising market." While Yahoo has opposed the Microsoft bid, it has looked into other options to improve its fortunes, including a possible tie-up with Time Warner's AOL. Analysts say such an association would be a less strong partnership than one with Microsoft.[40] Financial analysts agreed the plan is highly optimistic. Yahoo also has been in hyperactive mode with product and strategy announcements since Microsoft's bid, always pointing out that each initiative proved that it is able to improve its situation as an independent company. It acquired online video player Maven Networks, announced its social network OneConnect mobile service, re-launched its video site and introduced Yahoo Buzz, a social news site that has been well received. It also announced AMP, a new advertising management platform that it says will greatly simplify buying and selling ads online, and that will roll out in phases starting in 2008's third quarter and continuing into 2009.[12]

Microsoft yesterday reported strong quarterly earnings and warned that there is no reason to raise its bid for Yahoo and that "speed is of the essence" for completing a deal. Microsoft, the world's largest software maker, has been trying to acquire Yahoo since January in an attempt to bolster its lackluster online advertising business, a field that has been dominated by Google.[17] Microsoft's interest in Yahoo centers mainly on one thing: the lucrative online advertising business and Google's seemingly unstoppable domination of it. A Microsoft-Yahoo marriage, the thinking goes, would mean stronger competition in the market while potentially strengthening Microsoft in areas outside its core software business. As the deadline kicks in, here's a look at the options available to the company, along with the likelihood of each (according to observers tracking the deal), and their possible outcomes.[21]

Rosoff sees the proposed Yahoo merger as a poorly considered move, bringing Microsoft too far into the online advertising business -- a relatively new concept for a company built on designing software. Search advertising -- with its mathematical approach to matching queries with text ads --makes sense for the software giant, Rosoff said. Moving deeper into Yahoo's mainstay of graphical display advertising could be disastrous, he said. "I don't know that they need to be in the business of selling ads apart from search," Rosoff said. Rosoff pointed to Microsoft's MSN Web portal, which he said has never really shown much promise.[9]

"Our third-quarter results demonstrate the benefit of our diversified business model," Liddell said. Yesterday's report underscored the reason Microsoft is seeking Yahoo: Despite the company's overall strength, its online services division continues to lose money as it struggles to compete against Google for new markets in Web services and advertising.[17] When it reports first-quarter results on Tuesday, Yahoo has perhaps a last chance to demonstrate some financial strength and progress it has made in stabilizing the company's Internet media and advertising business after two years of decline. Mid-week, Yahoo is set to complete a test with Google Inc on whether Google should run a piece of its Web search ad sales, a move sources familiar with the talks say is part of a plan to merge with Time Warner's AOL and fend off Microsoft.[6] The partnership is believed to be an effort to thwart Microsoft's takeover bid. The successful culmination of the transaction is crucial for Microsoft to realize its goal of moving up in the online search service market, which is currently ruled by The Mountain View, California-based Google. The MSN service of Microsoft has been facing a slump in the recent months even as the company made massive investments in its web search business, including the acquisition of AQuantive Inc. Microsoft's Internet business recorded wider losses for its latest fiscal quarter, despite an increase in sales.[26]

A number of antitrust experts however have warned that a broader search advertising partnership between the two companies would face serious objections, as it would further solidify Google's dominant position in that market. While Google last month conducted 59.8% of all U.S. searches whereas Yahoo had only 21.3%, according to research firm ComScore Inc. Soon after they announced their test, Microsoft complained that any "definitive agreement" between Google and Yahoo would make the search advertising market "far less competitive." "It is simple to distinguish how there would be antitrust questions about something like that," said Gary Reback, an antitrust attorney who persuaded the Justice Department to pursue its landmark antitrust case against Microsoft in the 1990s. Microsoft has been reluctant to raise its bid price and has pointed out that it is willing to rescind its offer if the two companies cannot come to agreement on price. It is not giving up yet.[30] "The only problem it has is the macro-economic situation today." That, of course, would let Yahoo! Chief Executive Jerry Yang off the hook--for now. It would come at a high price. Yahoo!'s shares have surged more than 45% since Microsoft went public with its bid February 1. If Microsoft were to drop its offer, the software giant's shares would pop, and Yahoo!'s would quickly drop. That's quite a dilemma: Looks like it will be anything but a restful weekend for Yang.[22] The decline lowered the value of the Yahoo bid to $42.7 billion, or $29.68 per share. If Yahoo's stock were to plummet into the mid-teens, Microsoft conceivably could return with another offer that would probably be more warmly received than its original bid.[13] The value of the bid, originally $31 in cash and stock, has dropped to $29.68. Some Microsoft investors say Yahoo CEO Jerry Yang would lose a proxy fight unless he finds an alternative that will boost his company's shares.[29] Now we'''ve effectively (or perhaps ineffectively, depending on one'''s take on the rather ugly drama) arrived at zero hour. If the presumptions of Brian Caulfield at Forbes.com are accurate - which, if we'''re to think sensibly about this, there'''s really little reason to suspect them not to be so - Microsoft will be spending the weekend preparing itself to exercise all options necessary to make sure it gets what it craves for its $40-billion-plus. What began as a public bid for the Sunnyvale-based Web giant just before the clock struck February has turned into something that is nearing its fourth month and may well run close to Yahoo'''s annual board meeting, which the company must orchestrate every 13 months. (The last assembly was June 12, 2007.) Early on in this journey, which has been marked by a great share of press releases and a really exhaustive amount of analysis and commentary, most of you when polled thought it best for Yahoo to bite the proverbial bullet and submit to Microsoft'''s demands.[38]

"We think we can accelerate our strategy by buying Yahoo and we will pay what makes sense for us to pay for our shareholders." Microsoft's options also include withdrawing its offer, a move that could outrage Yahoo shareholders who have seen Microsoft's offer sharply push up Yahoo's share price. Some have threatened to sue Yahoo's board for failing in its duty to maximize the value of their investment.[5] Media reports suggest that the stalemate would prompt Microsoft to initiate procedures to oust the board of Yahoo. In the event of an unsolicited buy-out, Microsoft is likely to lower its offer price for Yahoo. Yahoo has been struggling to maintain its search engine market share, yet the company has demanded a higher price from Microsoft.[26]

The company's board said it is not opposed to a merger, but added that it is exploring other opportunities, including a partnership with other players. Analysts had speculated that Microsoft would eventually sweeten its offer to close the deal, but the software giant has maintained that it was standing by its offer. If Yahoo somehow ends up fending off Microsoft, "then the work for them really begins," he said. "They need to really think about their core business," Del Prete said. "Do they want to be ad-driven, or focus on software as a service? It's going to affect their strategy."[35] Likelihood: Low. There are still analysts who think Microsoft has room to offer $1 or $2 more per share, making its offer nearly irresistible compared with Yahoo's less-certain go-it-alone or partnership strategies.[21] Yahoo shares were down 3.2% to 26.42, more than $3 below the current $29.65 per share value of the offer. The decline in Yahoo shares reflected the lower value of Microsoft's cash-and-shares offer, analysts said, as well as the fact that there was a higher risk that the software maker would lower its offer.[18]

Microsoft's MSN and AOL witnessed 20 basis points and 10 basis points fall respectively during the month. The Redmond, Washington-based Microsoft disclosed its $31.00 per share offer in February 2008, but received an indifferent response from the management of Yahoo, which termed the offer far below the company's value.[26]

Yahoo!'s equally favourable quarterly results may have been seen as a possible bargaining point to up the Microsoft offer of US$43bn in 'cash and share' options. 'Our initial offer was extremely generous, more than a 100pc premium for Yahoo's core business, and our view on value is shaped by the long-term value of the company, and we intend to remain disciplined in our approach,' he added. Liddell opined that Yahoo! had'unrealistic expectations' if it felt the standing offer undervalued it and made reference to the company dragging its heels in the face of the inevitable.[41]

Microsoft Chief Financial Officer Chris Liddel said Thursday the company could take the offer to shareholders, put pressure on Yahoo!'s board or remove the offer altogether. A decision is expected this week.[42] If Mr. Ballmer follows through with that threat, Yahoo could face tough questions from some shareholders angered that it has refused Microsoft's offer. Some Yahoo shareholders have already sued the company's directors for acting against shareholder interests in their handling of Microsoft's takeover attempt.[15] All are waiting for the next installment in the saga, which has been punctuated by corporate gamesmanship and dueling celebrity CEOs. One scenario for Microsoft is to take its merger proposal hostile by asking shareholders to approve a more merger-friendly slate of directors. Microsoft would be gambling that shareholders would agree that its offer, which initially put a 62 percent premium on Yahoo's stock, is more lucrative than what Yahoo could offer as a stand-alone company. The tactic, called a proxy contest, has its risks because many employees could flee amid the inevitable mudslinging.[37] Microsoft has threatened to oust Yahoo's board if the 10 directors don't accept the current offer Saturday. That risky course of action, known as a proxy contest, probably wouldn't be settled until Yahoo's shareholder meeting, which doesn't have to be held until July.[43]

Impatient with the speed of negotiations, Microsoft had given Yahoo's board three weeks to agree to its blockbuster acquisition offer, initially valued at $44.6 billion, or face the consequences.[25] Yahoo's board of directors has said that Microsoft's offer undervalues the firm, and that it would not accept anything less than $45bn.[40]

Yahoo asked for a $12 billion raise in Microsoft's offer, which has not happened so far. It is common knowledge that Yahoo has been searching for a backup option to Microsoft's offer, discussing different partnership scenarios with Google, AOL and the News Corporation.[34] Options include a proxy fight or walking away from the offer and building Microsoft's Web unit without Sunnyvale, California-based Yahoo using other investments and partnerships, Chief Financial Officer Chris Liddell said.[29] Although Microsoft could still walk away -- chief financial officer Chris Liddell mentioned that as a possibility during Thursday's earnings call -- others believe the acquisition remains enticing as a way to grow Microsoft's lagging online ad biz. During the software giant's most recent quarter, losses in its online services segment widened to $228 million from $171 million in the year-earlier period, although revenue jumped 40% to $843 million in part due to the acquisition of aQuantive.[24] A hostile bid would be no slam dunk. "It's not clear if they would be successful," said Steve Weinstein, an analyst with Pacific Crest Securities. "It's a possibility, but not a certainty." Microsoft could still choose to pack up its bid and head home. Liddell, Microsoft's chief financial officer, signaled on Thursday that Microsoft may walk away, rather than increase its bid.[22]

Rob Enderle, principal analyst at Enderle Group in San Jose, said it looks like Microsoft is positioning itself to walk away instead of initiating a hostile takeover. "The rhetoric that is coming out, especially from their CFO, says he is on the side that says we walk away from this, and the CFO gets a significant vote," Enderle said. "And clearly if you look at the internal support for this, it has dwindled within Microsoft by quite a bit, so I think at this point they're likely to walk away." Enderle said Microsoft's latest financial results weren't where they needed to be to make this kind of acquisition.[1]

SEATTLE, April 27 (UPI) -- The offer deadline for Yahoo! by U.S. software giant Microsoft Corp. passed without comment, signaling a possible hostile takeover attempt, executives say.[42] Microsoft's unwanted courtship of Yahoo has hit a critical point as a deadline arrives for the struggling internet pioneer to accept the software giant's takeover offer.[44]

Microsoft did walk away from one high-profile takeover bid in the past, a $2-billion offer for Intuit, the personal finance software maker. That was 13 years ago, and Microsoft folded only after the Justice Department challenged the planned purchase.[4] Microsoft's third-quarter revenue inched up to $14.45 billion from $14.4 billion for the equivalent period in 2007. Analysts agree that Microsoft will probably prevail in its takeover bid, but it will have to sweeten its offer.[7]

Microsoft chief Steve Ballmer said if the deadline passed, the initial bid of a cash-and-stock offer valued at $29.68 per share would diminish significantly, The Wall Street Journal said Sunday.[42] Based on Friday's closing price, the original offer of $31 a share stood at $29.68. Others suspect Microsoft is bluffing when it talks about abandoning its bid.[23]

Yahoo hasn't come up with alternatives to Microsoft's $31 a share bid (if Yahoo did we would have heard about them).[45] Yahoo shares fell 50 cents to finish Friday at $26.80, pulled down by the declining value of Microsoft's cash-and-stock bid.[13]

Outcome: If the bid was bumped up a few bucks, it could juice Yahoo's stock, send Microsoft's shares down a bit and just might put the acquisition on a fast track.[21] One of the reasons Yahoo has rebuffed Microsoft is because Yahoo believes Microsoft's bid isn't high enough. If Microsoft drops its acquisition efforts, Del Prete estimates that Yahoo would have about six to nine months of breathing room improve its stock price and value and appease shareholders and institutional investors. "Yahoo thinks it's worth more, so everyone will be asking 'Show me why.'"[35]

Microsoft was unlikely to make a move on Monday, however, people familiar with the matter said. Ending its pursuit of Yahoo seems less likely following Mr. Ballmer's promise to go directly to shareholders after the deadline. Abandoning the bid following his public saber rattling might damage his own credibility as well as Microsoft's. Though Microsoft hasn't ruled out abandoning its pursuit, it is unlikely to do so, people close the company said.[15] SAN FRANCISCO (MarketWatch) -- The three-week deadline that Microsoft Corp. gave Yahoo Inc. to come to an agreement on its unsolicited bid for the Internet media company passed without any announcement from either side, leading to the possibility that the battle for Yahoo is about to turn hostile.[35] SAN FRANCISCO/SEATTLE (Reuters) - Microsoft Corp gave Yahoo Inc no hope of a higher takeover price, saying it was ready to go hostile or even call off its bid if Yahoo maintains "unrealistic expectations" of a better deal.[11]

Earlier, the company's general counsel Brad Smith had bluntly attacked the test, saying it raised antitrust issues. The two-week test, which was expected to end this week does not add Yahoo's network of affiliate or premium publisher partners and is restricted to no more than 3% of Yahoo search queries. The companies have not said whether they are planning to extend the test. "I assume Yahoo's interest in its deal with Google is to forestall a merger with Microsoft, largely so that its management can remain in control," said Keith Hylton, professor at the Boston University School of Law, in an e-mail. The test was meant to illustrate how much more revenue Yahoo could extract from its search engine by outsourcing the search ads to Google, whose technology is better at matching ads to queries.[30] Anything's possible. Ballmer and Yahoo co-founder and CEO Jerry Yang, with their lawyers and investment bankers in tow, could decide to get together for a backyard barbecue to talk things out. If they start to make real progress toward a deal, Microsoft would be unlikely to derail the talks even though its deadline has passed. Likelihood: Rumors may well fly this weekend, but the companies have met informally on several occasions to no avail. Both companies reported quarterly earnings this week, and the numbers did little to tilt the balance of investor opinion.[21]

Microsoft/Yahoo Deadline Passes With No Deal UPDATE: Yahoo failed to agree to an acquisition deal with Microsoft by the Saturday deadline, Microsoft responds. Using Social Networking Safely Howard Schmidt was reluctant to hop on the social networking bandwagon--a byproduct, he says, of the paranoia he internalizes. Developers Press Google on Its App Engine Google officials fielded questions from developers Thursday at the O'Reilly Web 2.0 Expo in San Francisco. Knock, Knock, It's the FBI Just imagine if one day in the near future the FBI comes to your business with warrants that allow them to seize and remove.[12] The one Microsoft business group still bleeding money is online services. Given that Microsoft is a distant third place in this race, I suppose it hopes that the Yahoo acquisition will bump it up to a distant second behind Google. It still seems like it will be a nightmare to merge two different corporate cultures. In an unrelated event, CEO Steve Ballmer said that Microsoft was willing to keep XP available past its drop-dead date of June 30 if customers wanted it, but customers aren't asking. Seriously, Steve? You haven't seen the Save XP petition ? Maybe he's right; they're not asking, they're begging.[46] " Microsoft could not have picked a better time to do this acquisition. They're doing it at a time when their core is extremely strong. there is a whole new frontier that they have not tapped." Analyst Steve Allen of Sierra Tech Research agreed saying, " Microsoft really feels that this is a make or break decision. They need to get back in the game against Google and they don't have too many options." That's why he believes that, "between all the tough talk and positioning to get Yahoo off the dime, the desire to close may very well involve more money.[9]

Microsoft does not need to hint it will pay more in absence of other bidders. It is trying to marshal as many threats to motivate Yahoo as possible, including the prospect of a shareholder revolt when Microsoft pulls away and the possibility that Microsoft might pursue a deal with another company. That could mean buying AOL from Time Warner, or Ask.com from IAC/Interactive. Or it could try to work out some venture with News Corporation to blend MySpace with its own properties. All of these companies have been talking to Microsoft and Yahoo over the last three months. It is certainly possible that a deal may emerge that doesn't involve Yahoo at all.[3] Walking away could still draw Yahoo into Microsoft's arms if Yahoo's share price falls on the news. That could spark more investor pressure to strike a deal with Microsoft.[15] The only thing to keep a relatively close eye on is the performance of Microsoft stock in the near future. (And Yahoo'''s own share price, too, of course.) My impression is that, if push comes to shove, Ballmer is probably very welling to follow through on his threat to do away with formalities and circumvent the Yahoo board with the promised proxy tactic. Some might think that an idle warning, and such an outlook may be vindicated in short order. I default on the side that Ballmer means what he says.[38]

Some 160,000 people already have signed an online Save XP Web petition who want Microsoft to keep selling it until the next version of Windows is released, currently targeted for 2010. On another issue, Ballmer said he was very confident that Microsoft's offer for Yahoo Inc. was "a very good price. Microsoft has set a Saturday deadline for Yahoo to accept its offer or face a proxy battle.[47]

I rang Microsoft to check whether it had any update, but it was keeping quiet. The Wall Street Journal said that analysts it spoke to were confident that the deal would eventually happen, but that Microsoft would have to raise its offer before Yahoo accepted. Microsoft'''s CFO, Chris Liddell, said its offer remains 'extremely generous,' and said Microsoft would 'reconsider its alternatives' if Yahoo fails to accept the offer this weekend.[48] The tough talk appeared to be a final attempt to bring Yahoo! to the negotiating table before the nearly three-week-old deadline expires. Yahoo! has said it is open to considering a deal, but only if Microsoft lifts its offer.[2]

The comments, made during a quarterly earnings call, came just two days before a Microsoft deadline for Yahoo to agree to a deal or face a hostile merger bid.[7] Microsoft has given Yahoo until the deadline expires to reach an amicable agreement or face a hostile bid at a reduced price.[44] "Microsoft will most likely have to initiate a hostile bid." Once Microsoft sets in motion a campaign to go directly to shareholders, Yahoo's response would be to come forward with its own plan to merge with AOL and turn over search ad sales to Google, arguing this has more long-term value, Lindsay said.[6] Once Yahoo! sets a date, expect Microsoft to name an alternative slate for Yahoo!'s board of directors and begin lobbying shareholders for votes. That means if Microsoft presses forward with a hostile bid, the battle could be over by August.[22]

News Corp. was later reported to be talking to Microsoft about a possible joint bid for Yahoo. News Corp. is the owner of Marketwatch, publisher of this report. Yahoo's board of directors is more vulnerable to a proxy battle because of its structure, in which the entire board comes up for reelection each year.[35] Microsoft could position itself to return with another bid without the pain if it were to try to oust Yahoo's board in a risky proxy contest.[39]

To prepare for a possible proxy battle, Microsoft hired Innisfree M&A;, a major proxy solicitation firm. The company also has prepared its own proposed slate of directors for Yahoo's board, according to the Wall Street Journal.[35] In what is known as a proxy contest, Microsoft would try to oust Yahoo's board by proposing a more merger-friendly slate of directors.[7]

As Associated Press puts it: "The tense mating dance is at a standstill because Yahoo's board has repeatedly said it won't sell to Microsoft for less than $45 billion."[39] Microsoft, the world's biggest software maker, can't afford to let Yahoo go, said Sachin Shah, an analyst for ICAP Securities in New Jersey. The company has spent billions creating a web search engine and technology to sell ads, and buying internet companies such as AQuantive.[49] There's reason to believe it could take a similar fall without Microsoft's acquisition proposal, though Yahoo's management has argued that Microsoft's bid undervalues the company in light of a new growth strategy. Investors belief in that strategy would be tested by this scenario.[21] Microsoft may appear desperate for Yahoo but the reality is that it could and arguably should walk away and be fine. Why? Microsoft has more alternatives at its disposal. With the Yahoo bid, Microsoft is going for a big bang but you can accomplish the same goal with a bunch of tuck-in acquisitions.[45]

Possible financial consequences of buying Yahoo were not factored into Microsoft's estimates for future earnings. "It is looking like it may not happen," Silicon Valley analyst Rob Enderle said of a Microsoft-Yahoo tie-up. "Ballmer is signaling he might walk away."[33] A financial analyst for Stanford Group, Clayton Moran, said Microsoft appeared ready to walk. "In a sense Yahoo!, by playing hardball, is really playing with fire because they have limited alternatives," he said. Earlier, Microsoft had reported weak Windows sales for its fiscal third quarter ended in March and gave a forecast for the fourth quarter ending in June at the low end of Wall Street expectations, sending its shares down nearly 5 per cent.[2] "Microsoft on Thursday reported quarterly earnings that edged past analysts' estimates." San Francisco -- Microsoft Corp. may possibly be struggling to buy Yahoo, thwarted investors expecting stellar earnings on Thursday, whose shares fell 5 percent in after-hours trade, also pressed its attack on takeover target Yahoo Inc., but revenue came in slightly below-target profit forecast, which overshadowed a strong outlook for next year.[4]

Losses for the division grew by more than 30% to $228 million for the March quarter, despite the fact that revenue jumped 40% to $843 million. McAdams Wright Ragen analyst Sid Parakh said the online unit's sales growth is encouraging and argued that Microsoft would be better off building its own online services. "I think they're better off without Yahoo," Parakh said[9]

Time Warner is happy to unload AOL and wouldn't give CEO Steve Ballmer nearly as much grief as Yahoo chief Jerry Yang has. With AOL, Microsoft would enhance its revenue, search and ad inventory.[45] At another point, an attendee challenged Gates over a past comment by Microsoft Chief Executive Steve Ballmer that Google has succeeded only in the Internet search market. "What's another place that you think they'll be making money in soon?" Gates asked.[36]

There is no doubt that Microsoft could live without Yahoo, but acquiring Yahoo would put it in a much better position to compete against Google in the Internet search and advertising arena.[10] Yahoo shares closed at $26.80. From Microsoft's perspective, it would be on its own trying to close a yawning gap with Google. Its share of U.S. Internet searches was 9.4 percent in March, compared with Google's 59.8 percent, according to comScore.[21] P.S.: Hopefully, Balmer won't cry when he doesn't get his way. To me it looks like it will damage both Microsoft and Yahoo, and I have to admit considerable puzzlement as to why Microsoft would want to do this. Hopefully Yahoo won't cry when they end up selling out to Microsoft for $18 to $23 a share, when they could've had $31.[14] The initial offer made by Microsoft on February 1 was $31 a share, adding up to a grand total of approximately $44.6 billion but after a downfall in Microsoft's shares, it is now worth about $42 billion, still making it, if finalized, the biggest-ever takeover in the high-tech industry.[34] The Redford, Wash. software giant in February made a $31 -per-share cash and stock offer for Yahoo which at the time valued Yahoo at around $44.6 billion.[50] The threat is intended to pressure Yahoo into accepting the blockbuster offer, which promises to reshape the Internet landscape by combining two technology titans. Yahoo has been anything but willing after repeatedly rejecting its suitor, describing the offer - initially valued at $44.6 billion - as substantially undervaluing the company.[37]

The Sunday Times reports that Microsoft will launch a hostile take over of Yahoo at its AGM on July 12, if the company does not accept its offer.[48] Microsoft said the offer is valid until Saturday. Yahoo for its part has said the offer significantly undervalues the company. "If we don't hear from Yahoo, we've said we'll go to their shareholders," Ballmer added.[50]

Just in case Yahoo felt Ballmer's comments were vague, Microsoft CFO Chris Liddell repeated: "We have yet to see tangible evidence that our bid substantially undervalues the company (Yahoo) In fact, we see the opposite."[51] Stanford Group analyst Clayton Moran weighs Microsoft's alternatives. With Yahoo employing "hard-ball" negotiating tactics, we believe Microsoft may publically drop its bid to acquire the company.[45]

Global Crown Capital analyst Martin Pyykkonen gives Microsoft more credit for how it has played the courtship game. If the two do not reach a deal this week, the stand-off could drag on for months. Yahoo has until mid-July to hold its annual shareholder meeting -- where Microsoft could propose its own slate of directors.[6] Yahoo has been seeking alternative partnerships or deals with AOL and Google, as a means of fending off Microsoft, but analysts generally weren't expecting it to come up with a viable option before the deadline.[23] Yahoo is examining several alternatives to a Microsoft merger, including an advertising partnership with Google, and deals with News Corp. and Time Warner's AOL unit.[7]

The Wall Street Journal, citing sources familiar with the matter, says Microsoft has already assembled a formidable slate of candidates to sit on Yahoo!'s board, including former Adelphia Communications (other-otc: ADLNQ.PK - news - people ) Chief Financial Officer Vanessa Wittman; Jaynie Studenmund, former chief operating officer of keyword advertising specialist Overture Services (now part of Yahoo!); former Grey Global Group boss Edward Meyer; and ex-Nextel Partners Chief John Chapple.[22] 'With or without a Yahoo! combination, Microsoft is focused on the online advertising market, which is expected to double by 2010 to US$80bn,' said Chris Liddell, chief financial officer for Microsoft, in yesterday's quarterly results conference call.[41] Liddell said that Microsoft could simply withdraw the purchase proposal and that Microsoft's "alternatives" would elaborated next week. With or without Yahoo, he said, Microsoft would be "focused on the online advertising market."[17]

With or without a Yahoo combination, Microsoft is focused on the online advertising market, which is expected to double by 2010 to $80 billion.[52] In reality though, Microsoft is still quite keen to snap up the search firm. With the IT giant looking to raise its share of the online advertising market, Microsoft could certainly do with a firm like Yahoo.[31]

The value of the Yahoo bid rises and falls with Microsoft's shares, because half the purchase price would be paid in stock.[23] Yahoo continues to lose search share and profitability continues to decline year on year. The results they announced on Tuesday were in line with the guidance they gave on their last earnings call on January 29th, after which their stock price closed at $19.05 and Wall Street analysts consensus on value was significantly decreased. As outlined in our recent letter to the Yahoo board, unless we make progress with Yahoo towards an agreement by this weekend we will reconsider our alternatives.[52] The world's biggest software company reported earnings of 47 cents per share -- topping financial analysts' predictions by two cents but lower than the 50 cents per share, or 4.93 billion dollars, posted in the same quarter a year earlier. Detracting from Microsoft's profits in its third financial quarter was 1.42 billion paid for a fine by the European Commission in an antitrust case against the maker of the ubiquitous Windows operating system.[33] "Our third-quarter results demonstrate the benefit of our diversified business model," said Microsoft chief financial officer Chris Liddell. "Our broad span across geographies, product categories and customer segments is a tremendous asset and supports our outlook for double-digit revenue, operating income and earnings per share growth for this fiscal year and also for fiscal year 2009."[33] The results include a tax benefit and detracting from the U.S. software giant's profits was 1.42 billion paid for a fine by the European Commission in an antitrust case against the maker of the ubiquitous Windows operating system that essentially offset one another. Chief Financial Officer Chris Liddell acknowledged a weak U.S. economy, nevertheless said a hold up in its domestic market had not hindered Microsoft's diverse set of businesses, which bring in more than 60 percent of its revenue from overseas.[4]

Microsoft chief financial officer Chris Liddell said Thursday that the U.S. software giant is standing by the April 26 deadline.[5]

"Speed is of the essence for the deal to make sense," Chief Financial Officer Chris Liddell said on a conference call Thursday following the release of Microsoft's fiscal third quarter results.[18]

Either Yahoo will surprise many by accepting the deal, or the more likely occurrence of Microsoft launching a hostile takeover will begin to take shape. [31] The next day, Microsoft hinted in a letter to Yahoo that it wouldn't shy away from attempting a hostile takeover.[12]

Microsoft has offered to buy it for $45 billion dollars, but Yahoo says it is worth more than that. This weekend the biggest takeover battle the technology world has seen should reach boiling point.[44] A three week deadline was set by Microsoft for the internet search firm Yahoo to agree to the takeover.[44]

Yahoo CEO Jerry Yang and his company's board are facing what might be their most important deadline. Microsoft Corp. has vowed to take the next step in its three-month merger fight for the Sunnyvale Web portal if it fails to have an acquisition agreement on the table by today.[37] Yahoo failed to agree to an acquisition deal with Microsoft by Saturday, the deadline Microsoft had set for wrapping up negotiations.[12] Microsoft hasn't gone hostile -- yet. Its stock has continued to drift, which could make the acquisition more expensive; and Yahoo has given no indication that it's warming up to a deal.[53]

Some analysts argue Microsoft's pressure tactics could backfire and spoil hope of Yahoo's board agreeing to a deal.[6]

"A proxy battle seems increasingly likely," a William Blair analyst, Troy Mastin, said. "It sounds like Yahoo!'s got a price in mind somewhere north of $US35 and Microsoft has a price in mind somewhere south of $US35."[2] "A hostile would be a long, drawn out, proxy fight and antithetical to what Microsoft wanted to accomplish." He added that it doesn't make sense for Microsoft to drag Yahoo kicking and screaming into its company. "It's just not a good practice, even in a recessionary year, and I think Microsoft is starting to step back and say it thinks there are other things it can do that are looking more attractive," he said.[1] Many interpret Microsoft's threat to mean that the company was planning to wage a proxy war to take over the Yahoo board.[9] Describing Ballmer as "a good bargainer," Kay of Endpoint Technologies Associates said Microsoft could essentially tell the Yahoo board, "You don't love us.[9] "The idea we should increase our bid just because we can afford to is not one that I favor. Unless we make progress with the Yahoo board by this weekend, we will explore our alternatives." Liddell's comments echo those made by Ballmer earlier in the week.[5] Keller said that's unlikely a long-term concern for Microsoft. There could be "short-term defections, a lot of blood shed in the media," he said. Ballmer and Liddell made clear this week that they were prepared to drop the bid. It could be posturing; there's been no shortage of that.[21]

Microsoft gave no indication of plans to raise its bid for Yahoo despite posting a mixed bag in its latest set of results.[31] Observers are skeptical about the possibility of yahoo's positive results being translated into an increase in Microsoft's bid price.[26]

Cutting the deal's price would lead to a protracted battle. He sees Microsoft sweetening its bid with an all-cash $31 offer.[6] Here's what Liddell said on the subject Thursday: "The strongest argument that I've heard on why we should increase our bid simply that we can afford to is not one that I favor." He called the initial offer "extremely generous" and Microsoft has "yet to see tangible evidence that our bid substantially undervalues the company.[21]

Microsoft announced its March quarterly earnings after market close. As expected, CFO Chris Liddell did not budge on Microsoft'''s stance towards raising its bid for Yahoo.[52] Yahoo's first-quarter earnings, reported on Tuesday, were considered a potential turning point in the drama. Although Yahoo's profit slightly beat analyst expectations, they weren't considered strong enough to force Microsoft to raise its bid.[7]

Not so much with Microsoft's three-month quest to buy Yahoo. The two technology giants have tussled publicly since Microsoft announced its takeover proposal Feb. 1. They've exchanged carefully worded statements and spread details of their negotiations and prospects through the media in a bid to gain the upper hand and sway investor opinion.[21] Fox Interactive: News Corp. and Microsoft reportedly have tinkered with a joint venture to bid for Yahoo.[45]

To avoid Microsoft's clutches, Yahoo has sought a strategic tie-up with a "white knight," reportedly examining possible alliances with social networking website MySpace, owned by Rupert Murdoch's News Corp., and with Time Warner's faded Internet star America Online.[5] Microsoft has options for establishing the online business without Yahoo, together with other investments and partnerships, Liddell said on a conference call. Talks between the two companies were characterized by "unrealistic expectations of value," and have been "anything but speedy," he said.[4] Microsoft, on the other hand, has dropped several not-so-subtle hints that it could walk away from Yahoo entirely -- yesterday CFO Chris Liddell said in an internal interview that it was a distinct possibility.[53] "Microsoft is committed to completing the transaction and is unlikely to walk away from the deal,'' Citigroup analysts Brent Thill and Mark Mahaney in San Francisco wrote in a note to clients April 25. Microsoft fell 6.2 percent to $29.83 in Nasdaq Stock Market trading April 25, a day after reporting sales of its Windows personal-computer software that fell short of analysts' estimates.[29] One online pundit, Henry Blodget of Silicon Alley Insider, put the chances at 60 percent that the company would walk away. Among other things, Blodget wrote, the company's "squishy quarter makes it less likely that Microsoft's rising stock will raise the value of Microsoft's bid on its own."[23]

The acquisition, which would be the largest in Microsoft's history, may help the company take a bigger chunk of the $41 billion market for Internet ads away from Google.[4] Ballmer also refused to say if the company plans to appeal a fine of 899 million euros ($1.3 billion) that the European Union levied in February. Microsoft has until the first week of May to launch a legal challenge against the EU decision that it had not obeyed a 2004 antitrust order to share technical information with rivals so that their programs would work better with Windows.[47] Ballmer also refused to say if the company plans to appeal a fine of 899 million euros ($1.3 billion) that the European Union levied in February. Microsoft has until the first week of May to launch a legal challenge against the EU decision that it had not obeyed a 2004 antitrust order to share technical information with rivals so that their programs would work better with Windows. Joking with the media and even breaking into good French, Ballmer acknowledged that he's finding it hard to keep up with social networking on the Facebook Web site. "I do have a profile on Facebook," he said. "It's hard to keep up.[43]

The comments came during a conference call in which Microsoft said it had $4.41 billion in profit (47 cents a share) during the quarter, a drop of 11 percent from the corresponding period a year earlier. This quarter's results were affected by a $1.4 billion fine from the European Commission for failing to comply with an antitrust order. [17] Microsoft's third-quarter profit fell to $4.39 billion (47 cents per share) from $4.93 billion (50 cents) a year ago.[7] "On the positive side, the company's profit forecast for coming year is higher than some analysts were projecting." The software maker said that its profits slipped to 4.38 billion dollars in the first three months of the year despite revenues rising slightly to 14.45 billion dollars. That compares to analysts' projection of 44 cents per share, on revenue of $14.5 billion, according to Thomson Reuters.[4] As far as Microsoft'''s quarter went, revenues were flat at $14.5 billion and operating income declined 33 percent to $4.4 billion. The drop in operating income was largely due to $1.7 billion in deferred revenue that the company recognized last year at this time related to the release of Windows Vista.[52] Microsoft's entertainment and devices division has been doing exceptionally well, with revenue up 68pc on the same quarter last year, which the company attributes largely to the demand for the Xbox 360 gaming console. Sales of the Microsoft next-gen games console pass 19 million in this past quarter and were up 74pc on this period last year.[41]

Losses at Redmond, Washington-based Microsoft's Internet business widened to $228 million last quarter, and sales rose to $843 million, at the low end of company forecasts.[29] Microsoft shares fell more than 6%, or $1.97, to $29.82 Friday after the world's largest software maker reported a 24% drop in sales of Windows last quarter and forecast earnings that may miss analysts' estimates.[19] Shares in Microsoft fell 6.4% Friday to $29.77 after the software maker reported a drop in quarterly profit and issued guidance for the current quarter at the low end of analysts' expectations.[18]

Shares in Microsoft ended at $29.9, after closing 6.1% lower, while Yahoo shed 1.8% to end at $27.[40] Yahoo!'s directors have rejected that offer as undervaluing the company. Major Yahoo! shareholders signal they want closer to $35 a share.[39] Yahoo is apparently not willing to accept the offer of $31 a share, arguing that it undervaluates the company.[34]

By the time Yahoo's board formally rejected the unsolicited offer on Feb. 11, saying it undervalued the company, Yahoo's stock price had risen to $29.87, erasing the offer's premium.[12] Yahoo's board of directors has said the offer "substantially undervalues" the California firm, insisting the company is worth at least 40 dollars a share.[5] Yahoo! directors say the offer is too low and suggested a price closer to $35 a share.[42] The issue of price has been the sticking point, with Microsoft's cash-and-stock offer valued at $29.68 a share as of Friday's market close.[39]

Outcome: Yahoo's stock was at a four-year low of $19.05 before Microsoft's offer. It immediately jumped into the high $20s.[21] An exodus would reduce the value of Yahoo to Microsoft, which would therefore prefer a friendly merger. Microsoft's executives have talked up the possibility of dropping their offer and focusing on building their existing Web business.[37] Microsoft's deadline to Yahoo for accepting its offer has expired silently without comments from either side.[34] Yahoo has continued to insist that Microsoft's offer "substantially undervalues" it.[15]

Microsoft CFO Christopher Liddell hinted on Thursday and in a broadcast to employees Friday the software giant will respond "next week," which happens to be now. All the incremental data on the Microhoo saga can be found on Techmeme, but the real question is this: Who has all the leverage? Despite Yahoo's bluster, it appears Microsoft still holds all of the cards. Microsoft controls its market cap and Yahoo's.[45] Most of you now think it unwise for Yahoo to take the bait. How can we parse this information and make some reasonably sound judgements? Well, speaking only for myself, I still consider it likely that Microsoft will achieve the ends it seeks, regardless of the means taken to get there. Why? Well, given Yahoo'''s release of good earnings this week, and Microsoft'''s subsequent publication of its own growth trend, we'''re more or less in the same place as we were many weeks ago. Relative to the overall technology market, Yahoo and Microsoft are neither much worse nor much better today than they were yesterday.[38] Now that the deadline has expired, the consequences are unclear. Microsoft has vowed to disclose its strategy sometime this week in a move that promises to intensify the drama in this corporate chess match. To demonstrate its resolve, Microsoft executives have mentioned several options at their disposal - all of which pose hazards to Yahoo.[25]

The question now is, given Yahoo???s recent experimentation with a Google partnership in the search and advertising arena, whether Microsoft will have to play an especially forceful hand to complete the purchase. Keep in mind, Microsoft has to make sure to keep its behavior in check throughout this process, come hell or high water, lest its image as a ruthless industry powerhouse transform into one described as a ruthless industry madhouse.[38] Microsoft's core desktop personal computer software, data center software and video game businesses all reported strong performances. Its online business, where Microsoft chases far behind the Internet search and advertising giant, Google, remains a problem.[4] Microsoft is eager to merge the two companies' resources to take on Google, which dominates the lucrative Internet search advertising market which is expected to grow to 80 billion dollars annually worldwide in the next two years.[5]

Sources at Microsoft indicate that the deadline may well pass without immediate action. Looming in the background is Google with its huge share of the online advertising market.[44] The company also announced that it will begin using Google's online advertising technology on a limited test basis, which prompted speculation that the two Web giants were exploring a deeper partnership to fend off Microsoft.[35]

Yahoo declined to comment Sunday on the passing of the deadline. The company has been exploring alternate deals with AOL and News Corp. Netco just concluded a test to outsource some of its advertising to Google.[24] Since the bid's announcement, Yahoo CEO and co-founder Jerry Yang has held conversations with various companies including Google, AOL, Disney and News Corp., exploring alternative deals that would strengthen Yahoo's business and relieve the pressure on it to be acquired.[12]

Steve Ballmer's deadline for the devalued $45 billion deal to take over Yahoo! passed yesterday, our time.[39] At the time of hitting the CDN "send" button last night, nothing had emerged from either camp. Ballmer was suggesting Microsoft will act this week with some insiders saying that Microsoft may well give the deal a miss.[39]

Microsoft CEO Steve Ballmer and CFO Chris Liddell softened that stance in public comments last week, saying that giving up on the acquisition would also be an option.[12] A screen grab of Microsoft's Windows XP operating system. LOUVAIN-LA-NEUVE, Belgium - Microsoft Corp. CEO Steve Ballmer offered a glimmer of hope on Thursday to fans of the company's Windows XP operating system, saying the company may reconsider its decision to stop selling it soon. Ballmer was adamant that most people who buy PCs today buy them with XP's successor, Vista. "That's the statistical truth," he told reporters at a news conference at Louvain-La-Neuve University.[43] "I'm hitting a golf ball, that's the real Steve Ballmer." He was in Belgium to open a Microsoft innovation center in the southern city of Mons that hopes to boost new startups in the country, creating some 200 jobs over the next three years.[43]

LOUVAIN-LA-NEUVE, Belgium - ' Microsoft could re-think plans to phase out its Windows XP operating system by June 30 if customers show they want to keep it but so far they have not, Chief Executive Steve Ballmer said.[27] Chief Executive Steve Ballmer says "we think the best way to move forward quickly is to come together with Yahoo.[30]

The list includes John Chapple, former CEO of Nextel Partners Inc.; Edward Meyer, former CEO of Grey Global Group Inc.; Jaynie Studenmund, former chief operating officer of Overture Services, which was acquired by Yahoo; and Vanessa Wittman, former chief financial officer of Adelphia Communications Corp. It's unclear when the elections will be held, as the company changed its bylaws to extend the deadline for director nominations from March 14 to 10 days following the public announcement of the annual meeting. Yahoo has yet to say when it will hold its meeting, but according to the rules, it has to do so within 13 months of its last meeting, which was held in June 2007. That means Yahoo must hold its annual meeting no later than July or risk a delay that could prompt shareholder lawsuits. [35] The deadline is. The Cupertino-based company, Apple, announced today financial results for its fiscal 2008 second quarter ended March 29, 2008. During this period, Apple 2,289,000 Macintosh computers, a. Microsoft unveiled its Live Mesh synchronization system which allows files and folders to be shared and synchronized across multiple devices.[34]

"Expectations are sooooo L-O-W," Gillis said. Google shares soared 20 percent last week after the Internet leader reported strong results and swore off any economic weakness in its business, but analysts see little chance of a similar reaction for Yahoo. "Maybe Yahoo won't miss their quarter. They can't say anything bullish that people will believe," Pyykkonen said.[6] Observers speculated that the test, announced on April 9, could lead to a full-blown outsourcing of Yahoo's search ad business to Google, a move that financial analysts believe could boost Yahoo's revenue.[12]

Yahoo even tested letting Google handle placing online advertising on Yahoo's own search pages to determine whether it generates more money than Yahoo's new Panama online ad platform.[5] A long-term advertising partnership with Google probably would provide a significant boost to Yahoo's profits, but antitrust concerns might block an alliance between the owners of the Internet's two largest search engines.[13] Yahoo is the world's second-largest Internet search engine by market share, behind Google Inc. (GOOG).[50]

The pressure will likely be due to the widely expected consequence of Microsoft's withdrawal: Yahoo's share price would plummet.[9] Yahoo stock prices closed down 1.86 percent at $26.80 in trading Friday on the Nasdaq. Microsoft officials said they would consider only a modest increase.[42] Microsoft has given no indication that raising the price is in the cards. It was unmoved to do so by the better-than-expected first-quarter earnings Yahoo reported on Tuesday.[21] "With respect to Yahoo we have been clear speed is of the essence," Chris Liddell said yesterday while discussing a fresh Microsoft earnings report.[28] On the company's earnings call on Thursday, Liddell said speed was of the essence but the process has been " anything but speedy." Then again, it's not even noon in California, so Microsoft still has plenty of time to attack.[53]

On Thursday Microsoft CFO Liddell expressed the opposite view, underscoring the company's frustration over a battle that has dragged on for nearly three months. "Speed is of the essence for the deal to make sense and get folded into our online strategy," he said.[9] Liddell said Microsoft "will provide updates as appropriate next week" unless there's progress toward a deal.[23]

What Microsoft will do if Yahoo, as expected, continues to play hard to get, isn't entirely clear. Microsoft executives have laid out several options, one of which they've promised to choose next week.[37] Most analysts believe that, after all the machinations, Microsoft will ultimately acquire Yahoo. Although Yahoo is trying to conjure up alternatives, they say, the reality is that it doesn't have many. Derek Brown, an analyst with Cantor Fitzgerald, said, "Yahoo doesn't seem to have a whole lot of options that are as good as or better than what Microsoft seems to have put in front of them right now."[25] Yahoo has impressed many analysts by managing to cobble together a scenario where it might just drive off much-feared Microsoft.[6] Analyst Clay Moran of Stanford Group Co. also said Microsoft may have realized that the battle for Yahoo isn't worth the effort.[9]

At a conference in Milan on Wednesday, Ballmer said Microsoft was prepared to move forward without Yahoo.[20] I have not changed my opinion on that subject. Basically, Ballmer's attempt to hijack Yahoo looks suspiciously like a desperate attempt on the part of Microsoft to forestall its decline.[52]

Now is the perfect time for Microsoft to go after Yahoo and expand into an arena where it is weak, Thill added[9] It'''s strange that Microsoft has not commented on the fact that the deadline it gave Yahoo passed yesterday.[48] Microsoft's Saturday "negotiate or else" deadline for Yahoo has passed with an eerie silence.[45]

Referring to Microsoft and Yahoo, "Right now you have two slower moving vendors that can hope to join together and create a more powerful No. 2."[9] Yahoo posted improved results on Wednesday and is in no mood to accept the current offer of USD31 per share that is on the table.[31] "Yahoo craters," Enderle said. "Its stock was largely supported by the bid. The market was trading its shares substantially lower before the acquisition attempt and the market would clearly punish Yahoo for walking away.[1] "We have yet to see tangible evidence that our bid substantially undervalues the company," Liddell said, referring to Yahoo.[11] "Yahoo continues to lose search share and profit continues to decline year on year," Liddell said on the call.[4]

Microsoft expects overall revenues in the current quarter to range from 15.5 to 15.8 billion dollars and profits to be from 45 to 48 cents per share.[33] Two-thirds of Microsoft's revenues in the quarter came from outside the United States and more than half of the cash was made in emerging markets. Microsoft reported that its Xbox 360 video game consoles and software for business servers were star sellers in the quarter.[33] Microsoft's position may not seem as strong following what is viewed as a weaker-than-expected report for the March quarter. Total revenue came in under expectations as the company saw sharp drops in its flagship Windows and Office businesses.[20] Last week, Yahoo reported 2008 first quarter earnings that were considered solid, although not stellar, and that Yang said prove the company is in the rebound. Yahoo grew its revenue and net income and exceeded Wall Street's expectations for both categories.[12]

Yahoo also added video to Flickr and joined Google's OpenSocial project of common APIs for social networking applications. Last week, it announced its most ambitious plan yet to take advantage of the popularity of social networking. Yahoo Open Strategy calls for the company to swing wide open the doors of its Web platforms to let outside developers create applications across its network of sites, starting with its search engine via a beta project called Search Monkey.[12] Yahoo is the No. 2 search engine behind Google, and it posted solid, if not spectacular, earnings last week.[24] No alternative deal has materialized for Yahoo, except for a very limited, albeit eyebrow-raising, test that saw Yahoo run Google ads along with some search engine results on Yahoo.com.[12] The two sides just completed a two-week trial that allowed Google to show text-based advertising along a small percentage of Yahoo's search results.[13]

Lawyers acting for an American private detective claim hundreds of thousands of companies that signed up to advertise on Google might have been deceived into paying for adverts they did not want. The private detective has launched a legal action against the search engine, and his attorneys want the lawsuit to become a class action, which could cost the company millions of dollars if he is successful. David Almeida said he signed up his firm, Bay State Detective Agency, as an advertiser on Google in 2006 - one of millions of small businesses that have found a cheap means of targeting advertising at people who are genuinely searching for their services. He wanted the ads to appear only on Google's own site, not the thousands of other websites, from MySpace to personal blogs, on which Google serves up the ads. Google had revenues of $1.7bn (£860m) from ads placed on third-party websites in the first three months of this year alone, a third of all its income.[8] Google, owner of the most used Internet search engine, had $3.7 billion in revenue in the period, excluding sales passed on to partner sites.[29]

Revenue was little changed at $US14.5 billion, matching analysts' estimates and disappointing investors looking for a better result after industry reports showed better-than-expected demand for personal computers.[2]

Analyst Roger Kay of Endpoint Technologies Associates argues that Microsoft may be wrestling with complex financial issues that make walking away a sound option. He speculated that Ballmer "is getting heat from inside." "His financials weren't so great," he said referring to Microsoft's earnings results, which exposed weaknesses in its core Windows and Office businesses.[9] "We still believe Microsoft is committed to completing the transaction and is unlikely to walk away," said Citigoup analyst Brent Thill.[40] Microsoft officials reiterated yesterday that the firm could simply walk away from the table.[17]

If there is no deal, Enderle said the market would "reward" Microsoft for stepping away. "Microsoft's stock dropped dramatically on announcement of this deal, and I think that the market would reward Microsoft for walking away and reward them sharply," he said.[1] Whether it was a slip or a sign of Microsoft's determination to finish the deal, the comment was the closest Gates came to even alluding to the acquisition drama. He touched on many other topics during the event -- which felt like a combination homecoming and farewell address, as the last stop on his final university tour before he leaves his full-time Microsoft role. With his father and two sisters watching from the front row, Gates recounted for the overflow crowd the well-known story of roaming the University of Washington campus as a boy with Paul Allen, who would become the Microsoft co-founder, looking for research computers that they could use in off-hours. They were "stealing computer time, and now I'm giving it back," Gates said, to laughter. Gates discussed a wide range of topics during a speech and a question-and-answer period, spanning his interests in technology, health and education. The speech included many of the same themes he discussed at other universities, including his belief in the long-term importance of natural user interfaces, such as voice and touch input.[36] "Whatever Microsoft does, the deal will happen," said Chris Le Tocq, an analyst with Guernsey Research.[37] While some analysts argue that Microsoft will now abandon the deal, others say it is unlikely to favour that option.[40]

We see the opposite," Liddell added. That could be a smart move, with the rising food and oil prices threatening the global economy, argues Trip Chowdry, a senior analyst with Global Equities Research. "When you think about the technology, when you think about the strategy, when you think about the pace of execution, Microsoft has got its act together," Chowdry says.[22] We want the desktop or tabletop, we want the white board, to be something that's completely intelligent." One attendee asked Gates how he was thinking about the environmental impact of the technology proliferation that he envisions. Among other things, he talked about the reduction in the size and materials needed for computers and other devices. "The key thing we need is energy sources that don't cause environmental side effects, and that are dramatically cheaper," he said, adding later, "You really need to take this slope where the price of energy has come down. and consumption has gone up, and find a way to do that that has no negative side effect." At one point, Gates was asked how Microsoft was applying "lessons learned" from Windows Vista, the latest version of its operating system, which has earned a reputation for compatibility problems and other glitches, particularly during its first year.[36] "Precisely the part of the business that has languished for some time is growing real fast now," Weide said, noting Microsoft's online services have posted gains each quarter for a year.[33] The online business, while strategically important to Microsoft's future, is overshadowed in size by the company's mature software divisions.[4] The company must decide by early May whether to appeal to the European Court of First Instance against the fine, imposed because the Commission found Microsoft had charged rivals high prices to discourage software competition.[27]

Driven by Wall Street's disappointment with the company's short-term outlook, Microsoft shares dropped $1.97 to $29.83 on Friday.[13] Microsoft's shares fell $1.55, or 4.9 percent, in after-hours trading to $30.25.[7]

Microsoft posted earnings per share of USD0.47, ahead of the average estimate of USD0.44.[31]

"I think that for the time being, Microsoft will step back, let the dust settle and watch the fur fly between shareholders and management," said David Garrity, director of research for Dinosaur Securities. [25] One example is Microsoft's Surface tabletop computer, which Gates pointed to as a sign of new ways of interacting with computers and other devices. "We actually think it's time to amend our slogan of 'a computer on every desk,' " he said. "Because with this kind of technology, we'd want to put a computer in every desk.[36]

Yahoo's board is reportedly meeting Sundayyou'd think the company would have met before the deadline, but I guess we're all prone to procrastination. [45] Ballmer said at a conference in Milan. His comment, most analysts say, is probably a gesture intended to put more pressure on Yahoo's board.[4]

The Yahoo board of directors rejected the offer, saying it undervalues the Web portal.[35] We will provide updates as appropriate next week. These alternatives include taking our offer to Yahoo shareholders or to withdraw our proposal and focus on other opportunities, both organic and inorganic.[52] "And our alternatives then, are to try to facilitate a transition, to possibly go directly to Yahoo shareholders. We'll see what next week brings," he added.[10]

We have 1200 "specialist" contacting every last Yahoo shareholder with more than 15 shares of their stock.[53]

Ten directors are up for re-election at Yahoo's next shareholders meeting, which should be held soon; last year's was in June.[24]

Yahoo management has expressed confidence in a turnaround plan that projects revenue increases of 25 percent in 2009 and 2010. Analyst estimates for those years have remained substantially below those targets — a sign of the widespread skepticism about whether Yahoo will be able to reach its ambitious goals.[13]

With respect to Yahoo we have been clear, as evidenced in the size of our offer premium, that speed is of the essence for the deal to make sense.[52] Ballmer also warned that any further delays could result in a less attractive offer for Yahoo.[5] Our initial offer was an extremely generous, more than 100 percent premium for Yahoo'''s core business.[52]

If it does not, we go forward." The people, who spoke on condition of anonymity due to the sensitivity of the talks, said they did not expect Microsoft to carry out its less explicit threat to lower its offer price.[30]

Liddell's comments follow similar statements from Microsoft CEO Steve Ballmer in recent days.[20] Chief exec Steve Ballmer called the original cash-and-stock offer "quite generous," pointing out that it was roughly 80 times earnings.[24]

"Our bid is quite generous, roughly 80 times earnings," Ballmer said. "If we don't hear from Yahoo!, we've said we'll go to their shareholders."[42]

Alley Insider's Henry Blodget is betting there's a 60 percent chance Microsoft walks. After reporting a mixed quarter and below-target forecast, it's looking unlikely Microsoft will raise its bid.[51] Investors were particularly disappointed with Microsoft's outlook for the fourth quarter, which came in at the low end of analyst expectations, and for fiscal 2009.[7] There was impressive 35 percent growth in Microsoft's online services unit which includes MSN and Live Search, according to IDC analyst Karsten Weide.[33]

"No, anybody can give things away," Gates responded, to more laughter. "But they're a great company. They're doing lots of good work. but fundamentally that search-advertising nexus is more than 100 percent of their current profit stream -- and a very nice profit stream, indeed." One student asked Gates what made him believe so much in the idea for Microsoft that he was willing to drop out of Harvard University to pursue it. Before Gates answered, Mark Emmert, the UW president, interjected by saying to the student, "But you're not going to take this as a recommendation to drop out of college."[36] Acquiring Yahoo would give it the No. 2 spot in the $41bn online ad market.[49] What happens to all those broadband service providers who have closely aligned their consumer online business strategy with the Yahoo brand.[51] "But it is 35 percent growth in a small business - it is not even close to Yahoo or Google."[33] The most concrete was on Feb. 12 when Yahoo, as it had been planning to do, started laying off about 1,000 staffers, and prominent executives like Bradley Horowitz, vice president of product strategy, voluntarily gave up on the company and left, in Horowitz's case to arch-rival Google.[12] Combined, Google and Yahoo control more than 80 percent of the U.S. search market.[13] "Jointly, Yahoo and Google control almost 80% of the search engine market, which unquestionably brings into focus how few real competitors exist in the space."[30]

Google said it would not comment until it had been formally served with the lawsuit. Mr Almeida has been a private investigator in Boston, Massachusetts, for more than a decade and tried advertising his services on Google for the first time in November 2006. When advertisers sign up to Google's advertising service, they can set a maximum price they will pay for ads next to Google's search engine results, but are told that setting a price for ads on other websites is optional. Mr Almeida said he reasonably assumed leaving it blank would mean his ad didn't appear at all and that he wouldn't be charged. "By redefining the universally understood meaning of an input form left blank, and then intentionally concealing this redefinition, Google has fraudulently taken millions of dollars," Mr Almeida alleges in the lawsuit, filed in a California court last Tuesday.[8]

Google handled six times more queries in the U.S. in March than Microsoft, according to ComScore Inc., a Reston, Virginia-based researcher.[29]

The takeover drama between the technology titans enters a new phase with all eyes set on what Microsoft Corp's next move would be.[6] Over the past year, the dollar has collapsed compared with nearly every other world currency. That's been good news for Microsoft's overseas sales, which are done in the local currency.[46] Although we may be on the rim of a recession, Microsoft's sales in the Windows and Office area stayed pretty solid. After traveling a long road, Microsoft's XBox business should finally be profitable this fiscal year.[46]

There is a good chance that Microsoft views a proxy fight as long, costly and potentially harmful to business.[45] "Microsoft is willing and ready to launch a proxy battle," Hilal said. "It will be close, but I do think Microsoft will get enough votes at the end of the day."[22] David Hilal, associate director of research at Friedman, Billings, Ramsey & Co., thinks Microsoft has the votes.[22]

Saying you only like Flikr tells me you only got on the interwebs in the past couple of years. Anyway, I dont think yahoo will do well to be swallowed into m$generic dullness, i think its history of good content and ideas may continue into an integrated web2.0 if they get off their bums. [53] The public remarks of Ballmer and Liddell could be just part of a negotiating ploy aimed at pressuring Yahoo to the negotiating table.[13] "With respect to Yahoo we have been clear: speed is of the essence," Liddell said.[5] "We have yet to see tangible evidence that our bid substantially undervalues the company," Mr Liddell said.[2]

Hostile takeover bids often prompt an exodus of workers and make hiring difficult.[25] Abandoned takeover bids have paved the way to corporate acquisitions before.[13]

The two companies engaged in talks in recent weeks to negotiate a friendly acquisition, but Saturday's deadline to reach a deal passed without comment from either party. [42] With Saturday being the deadline for acceptance of the offer it appears the deal is about to reach a crossroads.[31]

Ballmer called the offer "quite generous'' two days ago. "By this point if they don't agree we would have to take our arguments directly to the shareholders,'' he said after a speech to business executives in Madrid. "We will see what they do, and we will move appropriately at that point.''[29]

Ballmer was also asked whether the company would appeal against an 899 million euro ($1.42 billion) antitrust fine imposed by the Brussels-based European Commission in February. "I really have nothing to say about that today, sorry," he said.[27] Revenue was $14.45 billion, up from $14.40 billion in the corresponding quarter a year earlier.[17] Third-quarter net income fell 11 per cent to $4.39 billion, or 47 cents a share, while revenue remained almost unchanged at $14.5 billion.[3]

Earnings per share came in at $0.47, about two cents above consensus, but still down from $0.51 last year.[52] Excluded from that is a $450 million to $550 million one-time investment gain on China's Alibaba.com. That narrows the debate to whether profits will be near the top or bottom of a range of from 6 cents to 13 cents per share.[6]

Yes gmail IS larger (and imap w00t) but you can't ignore what yahoo did. I loved yahoo briefcase which was a unique sol'n AT THE TIME to online storage, its messenger was beating msn's ass for a while. [53] The company charges a fee every time someone clicks on the ad. Mr Almeida's lawyers, at the firm Kabateck Brown Kellner, believe hundreds of thousands of advertisers have been charged for ads on websites where they didn't want them, and they believe they can build a class action of significant size. "This affects the little guy, the first-time advertiser, the ones who are most vulnerable," said Brian Kabateck. "They think they are buying ads on Google and they are getting only Google, but they are losing control of their ad campaigns and. paying for ads that do them no good."[8] The Redmond, Wash., software giant's third-quarter profit was down from a year earlier, when the company enjoyed a windfall from coupons issued to consumers after delays in releasing new software.[7]

Online services revenue was up 40 percent to $843 million, but that business posted a larger operating loss of $228 million. [52]

SOURCES

1. Microsoft-Yahoo: Deal or no deal?
2. Your time's up, Microsoft tells Yahoo! | smh.com.au
3. domain-b.com : Microsoft reports declining sales; sticks to original Yahoo offer
4. Microsoft Profit Drops; But Beats Forecast | eBrandz Search Marketing & Technology News
5. AFP: Microsoft takeover deadline for Yahoo expires without comment
6. For Yahoo, clock ticks down to Microsoft deadline- Hindustan Times
7. Microsoft says it won't increase bid for Yahoo
8. Private eye sues Google over 'unwanted ads' - Business News, Business - The Independent
9. UPDATE: Microsoft, Yahoo Inch Closer To Deadline On Merger Talks
10. The Hindu News Update Service
11. Microsoft issues final threat to scotch Yahoo deal | Technology | Reuters
12. PC World - Business Center: Microsoft/Yahoo Deadline Passes With No Deal
13. The Associated Press: Microsoft in quandary over Yahoo bid as key deadline looms
14. Microsoft gives Yahoo till the weekend - The INQUIRER
15. Moneyweb - Wall Street Journal - Microsoft confronts tough choice on Yahoo
16. globeandmail.com: Market Blog - Don't bet on Yahoo
17. Microsoft Presses Yahoo on Deal - washingtonpost.com
18. Microsoft Offer For Yahoo Still Muddy As Key Deadline Looms
19. Microsoft holding strong on Yahoo bid
20. Microsoft Sticks to Hard Line on Yahoo Bid ((GOOG), Microsoft Corp. (MSFT), Yahoo! Inc. (YHOO), (US38259P), (US594918), (US984332)) at SmartMoney.com
21. Microsoft | Time's up for Yahoo; what will Microsoft do next? | Seattle Times Newspaper
22. A Hostile Bid Could Be Over Fast - Forbes.com
23. Microsoft shares fall more than 6 percent
24. Microsoft plans next Yahoo move - Entertainment News, Technology News, Media - Variety
25. Yahoo mum as Microsoft merger deadline passes
26. Microsoft Likely To Pursue Hostile Takeover Of Yahoo As Deadline Ends [MSFT] - RTTNews, Today's Top Stories, Global Newswires, ToDay's Top News,Global Business news .
27. globeandmail.com: Ballmer offers hope for XP
28. Microsoft sticks to its bid for Yahoo- Internet -Infotech-The Economic Times
29. Bloomberg.com: U.S.
30. Yahoo-Google Ad-Sharing Test Gets Antitrust Scrutiny | eBrandz Search Marketing & Technology News
31. ENN - Microsoft posts mixed results
32. Articles | Microsoft's profits disappoint - ITV News
33. AFP: Microsoft sticks to its bid for Yahoo
34. Microsoft's Deadline to Yahoo Expired Silently
35. Microsoft deadline for Yahoo deal passes in silence - MarketWatch
36. Gates looks back, ahead
37. Microsoft bid deadline looms for Yahoo
38. Time Ends For Microsoft-Yahoo Negotiations. What Now?
39. Microsoft May Give Yahoo A Miss - Smart Office
40. BBC NEWS | Business | Microsoft falls on weak forecasts
41. SiliconRepublic.com: With or without Yahoo!
42. Microsoft may get hostile with Yahoo - UPI.com
43. FOXNews.com - Ballmer Hints Microsoft May Extend Life of Windows XP - Science News | Science & Technology | Technology News
44. Microsoft deadline looms for Yahoo - ABC News (Australian Broadcasting Corporation)
45. Microsoft: Pondering the alternatives to Yahoo | Between the Lines | ZDNet.com
46. Microsoft's Third Quarter Results: Uncollapsed - Microsoft Blog - InformationWeek
47. ABC News: Efforts to Save XP May Have Worked
48. Microsoft Yahoo AGM attack (Networx Generation)
49. Bid for Yahoo to turn 'hostile' - World, Business - Independent.ie
50. Microsoft CEO Ballmer: Offer For Yahoo Generous
51. MediaFile » Blog Archive » Microsoft, Yahoo deadline looms | Blogs | Reuters.com
52. Microsoft Reports Flat Revenues, Stands Firm on Yahoo Bid - Seeking Alpha
53. D-Day: Still No Word From Microsoft | Epicenter from Wired.com

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