Microsoft's rethinking Yahoo bid as market deteriorates

With economic conditions worsening across a broad scale, Microsoft is re-evaluating its unsolicited offer to acquire Yahoo, according to a person familiar with Microsoft's thinking.

"All indications are that the market will continue to deteriorate," the person said. "Microsoft will continue to evaluate its offer in that context,"

Yahoo's board has rejected the offer, worth $44.6 billion at the time it was made public Feb. 1. Yahoo said the bid substantially undervalued the company, but it has been unable to work out deals with other potential suitors, reportedly including Google and News Corp. Many analysts think the company eventually will be sold to Microsoft.

But Microsoft, in reconsidering its bid, may lower it.

"Changes in Yahoo's business suggest that the value of Yahoo may be less today than when Microsoft made the offer," said the person familiar with the situation.

Attempts to reach Yahoo representatives Friday were unsuccessful.

A report Friday in The Wall Street Journal said executives from both companies met informally this week without resolution. The Journal, quoting unidentified sources, said Microsoft stood by its offer, a combination of cash and stock, while Yahoo refused to formally negotiate without a higher offer on the table.

The meeting took place near Yahoo's Sunnyvale, Calif., headquarters and was the second time both sides have met informally in recent weeks, the Journal said.

The person familiar with Microsoft's thinking said the company has wanted "a speedy and friendly transaction."

"Microsoft tried again and again to engage in substantive negotiations to reach a transaction," the person said, but Yahoo's board has refused.

A lower bid in a faltering economy could increase shareholder pressure on Yahoo to reconsider.

"They are probably realizing that by the time the fight is over, Yahoo's value will have decreased a bit in the current macro environment," Jeffrey Lindsay, an analyst at Sanford C. Bernstein in New York, told Bloomberg News. Yahoo's "best opportunity was to take the Microsoft offer and turn it into friendly negotiations."

In mid-March, in an attempt to show that Microsoft's offer undervalued their company, Yahoo officials released a generally optimistic forecast, with plans to double operating cash flow over the next three years.

But analysts greeted the projections with varying degrees of skepticism, and some saw it as part of a bargaining process.

Word that Microsoft may be reconsidering its bid sent Yahoo's shares down to $27.42 in extended trading after it had finished regular trading at $28.36, up 23 cents. Microsoft ended regular trading at $29.16, up 16 cents, and rose in extended trading to $29.60.

Benjamin J. Romano: 206-464-2149 or bromano@seattletimes.com. Material from Bloomberg News is included in this report.