Page last updated at 11:47 GMT, Wednesday, 20 February 2008

Microsoft steps up Yahoo campaign

Yahoo signs
There is currently a stalemate between Yahoo and Microsoft

Microsoft has hired a firm that specialises in proxy battles in a move which suggests it could try to oust the current board of Yahoo directors.

The Yahoo board rejected a takeover offer from Microsoft worth more than $40bn (20.6bn) saying it was too low.

A proxy fight would see Microsoft nominate a group of directors sympathetic to a deal for shareholders to vote on at Yahoo's annual meeting.

The move would be cheaper than raising its $31-a-share offer, analysts say.

Microsoft's offer was 62% above the level at which Yahoo stock was trading when the bid approach was made on 1 February, and Microsoft has called the price "full and fair".

Microsoft is doing the smart thing. It's giving both the carrot and the stick
Toan Tran, Morningstar analyst

However, one of Yahoo's biggest shareholders, Bill Miller, an asset manager at Legg Mason, recently said a fair price would be nearer $40 a share.

But it is thought that even offering an extra $1 a share would cost Microsoft an additional $1.4bn, while waging a proxy fight could cost between $20m and $30m.

"Microsoft is doing the smart thing. It's giving both the carrot and the stick," said Morningstar analyst Toan Tran.

"The carrot was the big premium on Yahoo stock and now the stick is the threat of a proxy fight."

Aggressive tactics?

A report in the New York Times on Tuesday said that Microsoft could authorise its proxy battle as soon as this week to put pressure on the Yahoo board.

Microsoft would have until a 14 March deadline to put forward its own choice of directors for shareholders to approve.

Microsoft declined to comment on the report.

But Innisfree M&A Incorporated, which specialises in corporate actions, confirmed that it had been hired by Microsoft.

Separately, Yahoo has put in place severance benefits for employees who are made redundant if the company is sold within two years.

Details in a securities filing show that they include top executives getting two years worth of salary, while all staff will receive at least four months.

Some analysts believe the move is aimed at winning round rank-and-file employees and fuel an exodus of talent if Microsoft succeed in a hostile quest for Yahoo.


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