Microsoft has three options on Yahoo

SAN FRANCISCO, USA: Microsoft Corp Chief Executive Steve Ballmer said on Thursday that walking away from a deal with Yahoo remained one of “three big options” the company is weighing and to expect an announcement shortly.

Neither side would comment on whether they were seeking a last-minute deal before Microsoft makes good on its threat to turn its unsolicited bid, currently worth $42.4 billion, into a hostile takeover battle.

But in a sign that Yahoo continues to resist Microsoft’s embrace, a source familiar with discussions between Yahoo and Google Inc said a partnership could come as early as next week. The non-exclusive partnership would involve Yahoo carrying Google advertising alongside Yahoo’s Web search results.

Ballmer told employees during a regularly scheduled company Town Hall meeting that Yahoo is valuable as part of a strategy to beat Microsoft arch-rival Google, but there are limits on the price Microsoft is ready to pay.

“Yahoo’s not a strategy, it’s a part of a strategy,” Ballmer declared. His remarks were first reported by Silicon Alley Insider, whose reporter said he monitored the internal conference call. A company spokesman confirmed the comments.

“We’re interested to pay for it at some level and beyond that level we’re not willing to pay for it. I know exactly what Yahoo is worth to me … I won’t go a dime above and I will go to what I think it’s worth if that gets the deal done,” he said.

Microsoft has promised this would be the week that it spells out its next moves if Yahoo allowed a deadline set for last Saturday to expire on its three-month-old offer to buy Yahoo for $31 per share in cash and stock.

Seeking to force Yahoo to the negotiating table in early April, Ballmer wrote a letter to Yahoo’s board of directors threatening to cut the bid and mount a proxy fight to remove the board if Yahoo did not reach a deal by April 26.

Ballmer went further last week by saying Microsoft was considering walking away from the deal. But most Wall Street analysts dismiss this as a hardball negotiating tactic rather than a real threat to end its two-year-long pursuit of a deal.

On Thursday, five days after Microsoft’s deadline for reaching a negotiated deal expired, Ballmer told employees “we ought to announce something in very short order.”

“We’ve got basically the three big options in front of us,” Ballmer summarized. “There’s the friendly deal, there’s an unfriendly deal, (and the) third path is simply to walk away.”

The two companies are in a standoff over price. Yahoo responded within weeks of receiving the unsolicited takeover bid by saying the offer “substantially undervalues” it. It has sought other partners, while not ruling out a Microsoft deal.

The Wall Street Journal reported on Wednesday that Microsoft had told Yahoo it was willing to raise its bid to as much as $33 a share, but was unwilling to go as high as the $35 to $37 a share for which Yahoo’s major investors have lobbied.

Ballmer repeated the key reasons for buying Yahoo were that it would allow Microsoft to move faster in creating a credible No. 2 to Google, which dominates key segments of the Internet market and is expanding rapidly in new directions.

Yahoo would provide Microsoft scale, a bigger audience for Web search — a key starting point for many Internet users — and a stronger presence in online advertising, he said.

“The world is rooting for us,” Ballmer said. “The world hopes that there’s … a very strong company that’s not the number one guy,” he said, referring to Google.

Most Wall Street analysts believe Microsoft’s most likely next move is to begin a months-long proxy campaign, according to a Reuters poll conducted late last week. Analysts believe Microsoft will win but at great cost to Yahoo employee morale.

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