Yahoo shares fell 14 percent Monday as hopes for the once-dominant
Internet icon dimmed following Microsoft’s withdrawal of a $47.5
billion takeover bid.
The sell-off wiped out nearly half the gain
in Yahoo Inc.’s stock price since Microsoft Corp. made its initial
offer on Jan. 31 in an effort to challenge online advertising and
search leader Google Inc. The downturn left Yahoo’s market value about
$13 billion below Microsoft’s last offer.
Last-ditch talks between Yahoo and Microsoft were fruitless, leading Microsoft to walk away from a deal Saturday.
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In
early-afternoon trading Monday, Yahoo shares shed $4.04, or 14.1
percent, to $24.63, below Friday’s close of $28.67, when investors were
still hopeful about a deal.
Despite the backlash, analysts doubt
Yahoo shares will fall back to their $19.18 pre-bid price, partly
because some investors may still be holding out hope that the software
maker will renew its takeover attempt if Yahoo continues to struggle.
Microsoft
shares rose less than 1 percent, or 18 cents, to $29.42. The shares had
declined 10 percent to $29.24 since the bid, reflecting concerns that
the proposed marriage would turn into a complicated mess that would
enable Google to grow even stronger.
Shares in Google went up
nearly 2 percent, or $9.49, to $590.78. The company not only averted a
marriage it had fiercely objected but also began discussions that could
lead to a long-term advertising partnership with Yahoo, a deal made
more likely with Microsoft’s withdrawal. Any Google-Yahoo alliance,
though, would likely face antitrust hurdles.
Yahoo Chief
Executive Jerry Yang remained convinced that the company he started in
a Silicon Valley trailer 14 years ago, was worth more than the money
Microsoft had offered.
Now he may only have a few months to
convince Wall Street that his rebuff of Microsoft’s takeover bid was a
smart move – and if he can’t, analysts won’t be surprised if Yang is
either replaced as CEO or forced to consider accepting a lower offer if
Microsoft comes knocking at his door again.
”This squarely puts
the pressure on Jerry Yang to deliver results and shareholder value,”
Standard & Poor’s equity analyst Scott Kessler said. ”You are
going to see a lot of shareholders just throwing in the towel because
they are going to realize it’s going to take awhile for the stock to
get back to where it was Friday.”
In a posting Sunday night on
Yahoo’s blog, Yang welcomed the added pressure. ”We know the spotlight
will probably stay on us for a while,” Yang wrote. ”That’s fine – we
have a clear path ahead and momentum to build on.” He added the
Microsoft saga had turned Yahoo into ”a stronger, more focused company
with an even greater sense of purpose.”
Yahoo shares finished
last week at $28.67, slightly less than the $29.40 per share that
Microsoft was offering before Chief Executive Steve Ballmer agreed to
raise the offer to $33 per share in a last-ditch effort to get a deal
done.
Disillusioned shareholders are bound to question whether
the rejection of Microsoft’s sweetened offer was driven more by emotion
and ego than sound business sense.
”Clearly there’s
frustration,” said Darren Chervitz, co-manager of the Jacob Internet
Fund, which owns Yahoo stock. ”I am not even sure if Yahoo cares about
its shareholders because they didn’t show much regard for shareholders’
best interests in this process.”
In his blog posting, Yang
defended the board’s handling of the Microsoft bid and branded some of
the criticism as ”a lot of nonsense and misinformation.”
”We
clearly indicated to Microsoft that we were open to a transaction but
only if it were on terms that fully recognized the value of Yahoo and
was in the best interests of our stockholders,” Yang wrote.
Accompanied
by fellow Yahoo co-founder David Filo, Yang flew to Seattle on Saturday
to inform Ballmer that the company wouldn’t sell for less than $37 per
share – a price that Yahoo’s stock hasn’t reached since January 2006.
To
win the faith of shareholders, Yang will have to execute a turnaround
plan that he began drawing up nearly a year ago after he replaced Terry
Semel as CEO amid shareholder angst about the company’s financial
malaise.
Ballmer also will be under the gun to prove he can come
up with another way to challenge Google’s dominance of the Internet’s
lucrative search and advertising markets.
The unsolicited bid was
widely seen as Ballmer’s admission that Microsoft needed Yahoo’s help
to upgrade its unprofitable Internet division.
Analysts now
expect Ballmer to use the money he had earmarked for the Yahoo
acquisition to explore other possible deals with large Internet
companies like Time Warner Inc.’s AOL and News Corp.’s MySpace and
promising startups like Facebook Inc. and LinkedIn Corp. Microsoft
already owns a 1.6 percent in Facebook, the second-largest social
network behind MySpace.
But Ballmer is unlikely to be under as
much duress as Yang, 39, who has promised that Yahoo’s development of a
more sophisticated and far-flung Internet advertising platform will
produce net revenue growth of at least 25 percent in 2009 and 2010.
That
would be a dramatic improvement, considering that Yahoo’s revenue rose
by 12 percent last year and is expected to grow at about the same pace
this year.
Analysts, though, are skeptical about whether Yahoo
will be able to hit those targets, raising the chances for a
shareholder rebellion if the company stumbles in the next two quarters – a distinct possibility if advertisers curtail spending in a shaky
U.S. economy, as many analysts fear.
To help boost its short-term
profits and its stock price, Yahoo is widely expected to form a
long-term advertising partnership with Google.
Although the final
details are still being ironed out, Yahoo wants to hire Google to place
some of the text-based ads that appear alongside the search results on
its Web site. It’s a task that Google already handles for scores of Web
sites, including AOL and Ask.com.
But turning to Google for help
would be a humbling step for Yahoo after spending more than $2 billion
to acquire and build its own technology.
An alliance between
Google and Yahoo also would face antitrust hurdles because the two
companies combined control more than 80 percent of the U.S. search
advertising market.
Yahoo also has been exploring a possible
merger with AOL’s Internet operations but may now have to contend with
a competing offer from Microsoft.