Yang says he's still open to Microsoft, but investors fume

Ballmer walked after Yahoo boss held out for $37 per share; largest shareholder 'extremely angry'

(Reuters)—Yahoo chief Jerry Yang was set to meet staff today after signaling a more open stance towards a takeover by Microsoft.

Mr. Yang told Reuters in an interview on Monday that he had “mixed feelings” about events at the weekend, when talks broke down. Investors showed their disappointment over the breakup of negotiations by sending Yahoo shares down 15% on Monday.

Asked if Yahoo would still leave a door open for Microsoft to return, Mr. Yang said: “If they have anything new to say, we would be open. ... I am more than willing to listen.”Mr. Yang said it had been Microsoft that ended the discussions.
“We were negotiating a way to find common ground and then on Saturday they chose to walk away,” said the 39-year-old co-founder of the pioneering Internet company. “They started it and they walked away.”Mr. Yang, who owns about 4% of the company, was expected to meet with employees on Tuesday in an effort to reassure them after the Microsoft talks ended.After three months of negotiations, Microsoft CEO Steve Ballmer raised his offer for Yahoo to $33 per share from an initial $31, for a total deal value of about $47.5 billion.Mr.

Yang held out for $37 per share, saying that even the sweetened offer did not value Yahoo properly for its Web search advertising technology, its prominence in selling display ads and its lucrative overseas holdings.But its two largest shareholders independently told The New York Times they would have sold for as little as $34.“I am extremely angry at Jerry Yang and at the so-called independent board,” Gordon Crawford, portfolio manager for Capital Research Global Investors, the largest Yahoo shareholder with some 16% of stock, told the newspaper.Some analysts said Yahoo shares, which dropped $4.30 to end at $24.37 on Monday, could have fallen 30% to closer to $19.18, its price before Microsoft made its bid public on Feb. 1. But the descent was cushioned by investors who are betting Microsoft will eventually come back to the table.

“This is going to play out over the next several months and there is still a chance Microsoft will buy the company for somewhere around $33 a share,” said Todd Dagres, general partner at venture capital fund Spark Capital.Late Monday, Yahoo said it will hold its annual stockholder meeting on July 3.Shares of Microsoft rose initially on Monday on investor relief that it was not paying billions more for Yahoo, though the stock ended down slightly amid concerns about how the software maker would develop its Web strategy in the face of a dominant Google.Microsoft courted Yahoo to capitalize on the rapidly growing market for Internet advertising, one that has long been served by Yahoo’s search, e-mail and Web communities.It is also trying to fend off the expansion of Google, which has made inroads into Microsoft’s home turf with a portfolio of Web based-applications, e-mail and messaging.But now that a deal has fallen apart, Google has emerged as the key beneficiary. Shares in the company rose 2.3% on Monday.“Google has just kept their foot on the accelerator,” said Derek Brown, analyst at Cantor Fitzgerald. “Neither Yahoo nor Microsoft in their current state seems to be a material competitive threat.”Yahoo is likely to press alternative strategies in coming weeks, including a search advertising partnership with Google and a deal for Time Warner Inc’s AOL Internet unit.A Google deal would boost Yahoo’s operating performance in the near term, but runs the risk of regulatory scrutiny over an alliance between the Internet’s top two players.Google and Yahoo are hammering out the intricacies of a potential deal and also are sharing their plans with antitrust regulators, a person close to Google who was not authorized to speak publicly on the matter said.In a letter to Mr. Yang over the weekend, Mr. Ballmer warned that any deal between Yahoo and Google would be difficult to unravel and would preclude an agreement with Microsoft.Mr. Yang told Reuters the company would take care to structure any new efforts to “preserve as much (as possible) long-term flexibility for Yahoo, both operationally and strategically.”Analysts expect a flurry of shareholder lawsuits against Yahoo, and say it may even face direct pressure on its board.Already, some Yahoo shareholders have started to question how talks were handled.Bill Miller, a portfolio manager for Legg Mason, Yahoo’s second-largest shareholder, told the New York Times in a Sunday interview that he would have considered selling to Microsoft for $34 or $35 a share.While that was more than Microsoft’s offer, it was less than the $37 per share Yahoo’s board had insisted on.Capital Research’s Mr. Crawford also said investors generally were looking for Yahoo to sell at $34. He hoped shareholders pushed Yahoo to revisit the issue but was not optimistic, he told the newspaper. The company owns about 16% of Yahoo.Mr. Yang said in a post on the company’s blog on Sunday night: “No one is celebrating about the outcome of these past three months ... and no one should. We live and work in a competitive world and the Web is only going to get more competitive. Executing on our strategic plan is what matters most.”