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Story URL: http://management.silicon.com/itdirector/0,39024673,39183529,00.htm

Microsoft deals Yahoo! an ultimatum
The clock is ticking for the board…

By Dawn Kawamoto

Published: Monday 07 April 2008

Microsoft has issued an ultimatum to Yahoo!, giving the internet search pioneer three weeks to enter formal merger negotiations and conclude a deal.

The software giant threatened to launch a proxy fight to unseat Yahoo!'s board of directors, as well as take its case straight to Yahoo! investors should no deal be reached in that period.

And as a further prod in securing a deal, Microsoft threatened to lower its existing bid, citing how Yahoo!'s value will be hurt if it needs to resort to such hostile means.

Steve Ballmer, Microsoft chief executive, stated in his letter to Yahoo!'s board of directors: "If we have not concluded an agreement within the next three weeks, we will be compelled to take our case directly to your shareholders, including the initiation of a proxy contest to elect an alternative slate of directors for the Yahoo! board. The substantial premium reflected in our initial proposal anticipated a friendly transaction with you. If we are forced to take an offer directly to your shareholders, that action will have an undesirable impact on the value of your company from our perspective which will be reflected in the terms of our proposal."

Microsoft initially offered an unsolicited buyout bid of $31 per share for Yahoo! back on 1 February.

Since its initial offer, executives from both companies met four weeks ago for the first time to discuss the merger and once again last week with no results of moving it into formal talks.

Yahoo!'s board is expected to discuss Ballmer's letter next week, as well as provide a briefing on how talks between the two companies went last week, one source said.

Yahoo!, which already rejected Microsoft's initial offer as too low and one that undervalues the company, is wary of entering formal talks without assurances Microsoft's bid will be higher.

A source said: "We could enter formal talks and they might increase the bid, or they might not. Our books are already open. We're going to report our earnings in a couple weeks."