Posted on Tue, May. 6, 2008
SAN FRANCISCO - Yahoo shares fell 15 percent yesterday as hopes for the once-dominant Internet company dimmed after 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. first made its offer Jan. 31 in an effort to challenge online-advertising and search leader Google Inc. The downturn left Yahoo's market value about $14 billion below Microsoft's last offer.
Last-ditch talks between Yahoo and Microsoft were fruitless, leading Microsoft to walk away Saturday from a deal.
Yahoo shares shed $4.30 yesterday to close at $24.37, well 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 be holding out hope that the giant software-maker will renew its takeover attempt if Yahoo continues to struggle.
Google shares rose $13.61, or 2.34 percent, to close at $594.90. The company, which had fiercely opposed the tie-up, had begun 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.
Shares in Microsoft fell 16 cents, or 0.55 percent, to close at $29.08. The shares had declined 10 percent to $29.24 on Friday since the bid, reflecting concerns that the proposed marriage would turn into a complicated mess that would enable Google to grow even stronger.
Yahoo chief executive officer Jerry Yang had remained convinced that the company he started in a Silicon Valley trailer 14 years ago was worth more than Microsoft had offered.
Now, he may have only a few months to convince Wall Street that his rebuff of Microsoft's takeover bid was a smart move - and if he cannot, analysts will not be surprised if Yang either is replaced as CEO or is 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.
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 that 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 CEO Steve Ballmer agreed to raise the offer to $33 a 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 by 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."
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.
