Microsoft Turns Up the Heat on Yahoo


Nobody has ever accused Microsoft of not knowing how to play hardball.

From its history of monopolistic practices, of elbowing competitors out of the marketplace (hello, Netscape!), or lifting ideas it likes from adversaries like Apple without shame, Microsoft is more than ready to throw the first punch.

With that in mind, it could be that Yahoo’s board of directors might just get flattened by the Microsoft machine. This after reports from Seattle that Microsoft is prepared to take its $31 per share takeover offer for Yahoo right past the company’s board and straight to Yahoo shareholders.

The proof? How about the fact that Microsoft has hired proxy solicitation group Innisfree M&A Inc. to help oust Yahoo's 10-member board, all of whom are up for re-election this year. According to the Associated Press and The New York Times, a source close to the deal who is not authorized to speak publicly about it said Tuesday that Microsoft could spend $20 million to $30 million on that effort.

As the AP points out, that’s peanuts compared to the $44 billion Microsoft has on the table in its offer to Yahoo.

According to The New York Times DealBook blog, Innisfree has until March 14 to nominate a slate of directors for Yahoo. Microsoft and its advisers declined to comment. Election results should be made available by June.

Another gambit up Bill Gates’s sleeve is to lobby Yahoo shareholders to sell their shares to Microsoft directly. What it won’t do, news reports say, is to hike its $31 per share buyout bid for Yahoo. That, despite one rumor that the company was proposing a per-share hike to $40.

But in an interview with The Associated Press Monday, Microsoft Chairman Bill Gates shot that rumor down. "We sent them a letter and said we think that's a fair offer. There's nothing that's gone on other than us stating that we think it's a fair offer," said Gates. "They should take a hard look at it."

For its part, Yahoo is clutching its cards and keeping them close to its vest. In a company statement released Tuesday, Yahoo said that its board is "carefully and thoroughly evaluating all of the company's strategic alternatives." The company has rolled out a new severance plan that would protect the jobs of full-time employees if Microsoft does take over. That could make it more difficult for Microsoft to move Yahoo staff to Redmond and raise the overall cost of merging the two companies.

The AP reports that in an e-mail to employees last Friday, Yahoo Chief Executive Jerry Yang wrote that the severance plans "shouldn't be construed as any indication that a change in control might or might not take place."

The company said in a Securities and Exchange Commission filing Tuesday that workers who lose their jobs without "cause" or quit "for good reason," as Yahoo defines it, would continue to receive their salary and medical benefits for four to 24 months, plus reimbursement for "outplacement services" for two years.

Microsoft hasn’t said how many Yahoo employees it would cut, if any. But the move to protect its employees by Yahoo isn’t going to make Bill Gates any happier.

Look for this story to grow ugly. All the elements are there.

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