Yahoo says no to Microsoft

— 9:23 AM on February 11, 2008

After mulling Microsoft's $44.6 billion takeover offer for the past week or so, Yahoo has decided to reject the offer. As the Associated Press relates, Yahoo says it is declining because it considers Microsoft's bid "substantially undervalues" the company.

Anyone who's been following this story will know why. Microsoft's half-cash, half-stock offer was for $31 per Yahoo share, a 26% premium over Yahoo's share price of $19 at the time the deal was announced. However, Yahoo's share price quickly climbed to over $29, and Microsoft's share price dipped as shareholders responded to the offer. As a result, not only did Yahoo's value increase, but the value of Microsoft's offer shrank, as well. An estimate posted last week pegged the updated value of the offer at $29.50 per Yahoo share—a premium of less than 2%.

What's next? As we reported last week, analysts believe Microsoft is bound to up its bid. The AP says Microsoft will likely offer to pay $35 to $40 per share next, bumping up the value of the deal by $5 to $12 billion. Microsoft could also choose to be more aggressive by offering its takeover deal directly to shareholders and trying to oust Yahoo's board members.

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