Yahoo! says no to Microsoft - again

The Yahoo! board has again rebuffed Microsoft's acquisition proposal.

Microsoft recently gave Yahoo!'s board three weeks to enter into a definitive acquisition agreement or face a proxy battle.

In a reply signed by CEO Jerry Yang and chairman Roy Bostock, the board again rejected Microsoft's proposal, saying it undervalues the company and is still not in the best interests of Yahoo! or its shareholders.

As for the threatened proxy battle, the rejection seems to say 'bring it on': "Contrary to statements in your letter, stockholders representing a significant portion of our outstanding shares have indicated to us that your proposal substantially undervalues Yahoo!," wrote Bostock and Yang.

"We consider your threat to commence an unsolicited offer and proxy contest to displace our independent Board members to be counterproductive and inconsistent with your stated objective of a friendly transaction. We are confident that our stockholders understand that our independent Board is best positioned to objectively and knowledgeably evaluate our Company's alternatives and to maximize value", they added.

The Yahoo! board also shrugs off the changes in market conditions since the bid was originally made

"[A]s a result of the decrease in your own stock price, the value of your proposal today is significantly lower than it was when you made your initial proposal... Yahoo!'s business forecasts are consistent with what we outlined in our last earnings call... our three-year financial and strategic plan which we have made public demonstrates significant potential upside not previously communicated to the financial markets."

There's also a suggestion of dirty pool on Microsoft's part. Microsoft CEO Steve Ballmer's recent letter said there had been "some limited interaction between management of our two companies, [but] there has been no meaningful negotiation to conclude an agreement", but Yang and Bostock say this was a mischaracterisation and reminded Ballmer that "you personally attended two of these meetings and could have advanced discussions in any way you saw fit."

The letter also claims it is Microsoft that is holding up discussions by failing to provide information requested by Yahoo! relating to regulatory issues.

Yahoo!'s position seems to be "You made an offer, we rejected it, now it's your turn to come up with a better bid so things can move ahead," while Microsoft's is "We think our bid represents full value even if you don't, so take it now or we'll offer even less."

So Yahoo! is apparently holding out for a price that reflects what the board sees as the company's full value plus a premium reflecting its value to Microsoft.

The Yahoo! executives closed their letter with the words "we will not allow you or anyone else to acquire the company for anything less than its full value."

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