A meeting of senior executives from the companies this week to discuss Microsoft’s hostile takeover bid was icy from the start and ended with no progress, people briefed on it said.
Microsoft and Yahoo both declined to comment.
Microsoft remains steadfast in its refusal to raise its bid and is growing increasingly frustrated with Yahoo’s refusal to enter into negotiations, according to a person with direct knowledge of Microsoft’s thinking.
“Microsoft has tried again and again to engage in substantive negotiations, but the board has simply refused,” the person said. “Since the offer was made, the market has deteriorated, and there are numerous indications that Yahoo’s business has declined.”
The person noted that technology companies’ shares, including Google’s, were down significantly since Jan. 31, when Microsoft first made its offer for Yahoo, and that Yahoo’s market share in Web searching appeared to have slipped. Meanwhile, a presentation by Yahoo’s management to large shareholders last month appears to have failed to convince investors that Microsoft’s bid undervalues Yahoo, the person said.
“All indications are that the market will continue to deteriorate,” the person said. “Microsoft will continue to evaluate its offer in that context.” The person said, however, that Microsoft was not considering lowering its offer or withdrawing it altogether.
Yahoo shares plunged 5 percent in after-hours trading Friday, after media reports suggested that Microsoft was re-evaluating its offer. The shares rebounded slightly later in the day, but remained about 3 percent lower than the Friday closing price of $28.36.
Told of the person’s remarks, Yahoo declined to respond.
Microsoft’s cash-and-stock offer for Yahoo was initially valued at $44.6 billion, or $31 a share. People close to Microsoft have said that in the absence of other interested parties, the company sees no reason to increase its bid, which already offers Yahoo shareholders a significant premium over the pre-offer share price of $19.18 a share.
A decline in the price of Microsoft’s shares has now made the offer worth about $42 billion.
Yahoo has been equally steadfast in its rejection of the offer, saying it “substantially undervalues” the company. Yahoo has explored alternatives to Microsoft’s bid, and has held talks with Google, AOL and the News Corporation about possible partnerships. Some of those conversations remain active.
In mid-March, Yahoo executives made presentations to shareholders projecting that the company would roughly double its operating cash flow in the next three years, to $3.7 billion, from $1.9 billion. The company also projected that revenue, excluding commissions paid to advertising partners, would be $8.8 billion in 2010, up from $5.1 billion last year.
“The presentation supports the unanimous determination by the company’s board of directors that Microsoft’s Jan. 31, 2008, unsolicited acquisition proposal substantially undervalues Yahoo,” the company said in a news release.
But some analysts called Yahoo’s projections optimistic and questioned management’s ability to deliver on them.
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