Last updated: April 7, 2008 6:47 pm

Yahoo digs in for final battle

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Yahoo positioned itself for the endgame in its battle with Microsoft by on Monday issuing its strongest rejection yet of its rival’s $42bn takeover offer.

However, analysts said the rhetoric from both sides suggested a negotiated settlement might happen, with Microsoft offering a deal worth more than its initial $31 a share.

Yahoo’s swift response to Microsoft’s move to set a deadline on Saturday of three weeks to conclude an agreement came in the form of a “Dear Steve” letter to Steve Ballmer, Microsoft’s chief executive, from his Yahoo counterpart, Jerry Yang, and Roy Bostock, chairman of the board.

It said Microsoft was still substantially undervaluing Yahoo, whose board had received
significant support from shareholders.

It said that they were impressed by projected revenues in a three-year financial and
strategic plan unveiled last month.

“This plan has received positive feedback from our stockholders, further strengthening the view that Yahoo is worth well more as a standalone company than the value offered in your proposal, and would be even more valuable to Microsoft,” it said.

Yahoo confirmed in the letter for the first time that informal meetings between the two sides had been taking place and, in a personal jibe, told Mr Ballmer that he could have speeded up the negotiation process.

“Steve, you personally attended two of these meetings and could have advanced
discussions in any way you saw fit,” it said.

The letter also said Yahoo’s concerns had not been addressed about the “thorough regulatory review in multiple jurisdictions” if a deal was agreed.

It added that Microsoft’s “threat” to launch a tender offer and proxy contest to
unseat the board was counter-productive.

The letter concluded by repeating that the board was open to all options, including “a transaction with Microsoft if it represents a price that fully recognises the value of Yahoo”.

“The real endgame [for Yahoo] is to get more per share,” said Carl Tobias, law professor at the University of Richmond.

Mark Mahaney, Citigroup internet analyst, said in a note that he saw Microsoft’s weekend move as “an endgame negotiating tactic”.

But he added that Yahoo was trading at a 24 per cent discount to a potential sweetened offer of $34 a share – “which we would consider a reasonable
valuation”.

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