Yahoo's future 'muddled'

2008-05-06 07:29

New York - Yahoo shares plummeted on Monday as the internet giant's future became clouded after Microsoft walked away from a bid rather than pursue a hostile takeover.

Shares in the Silicon Valley group sank more than 16% in late morning trade, while Microsoft saw a rally of more than two percent.

On Saturday, Microsoft yanked its proposal, saying the struggling internet pioneer refused to budge despite the software giant upping its offer to nearly $50bn.

Talks aimed at resolving corporate duelling that began with Microsoft's offer on February 1 to buy Yahoo for $31 per share ended with the two firms unable to close a multibillion-dollar gap in price expectations.

Jeffrey Ham, analyst at Briefing.com, said Yahoo shares were under pressure "as confounded investors try to assess the company's muddled future".

Ham added: "Without a merger or distinct strategic alternatives, Yahoo will most likely continue to lag a more innovative and faster growing Google."

Yahoo chief executive Jerry Yang said the company can move forward without the distraction of a takeover bid.

'We'll continue to execute on our plan...'

"With Microsoft's withdrawal, we'll be better able to focus our energy on growing our industry leadership and maximising value for stockholders," Yang said in a blog on Yahoo's website.

"We'll continue to execute on our plan - making your internet experience as personal, relevant, open and social as possible."

Some analysts said Yahoo may need another merger partner to face up to Google or that some new deal with Microsoft may yet emerge.

"Of course, this is far from over," said Danny Sullivan at Search Engine Land.

"There's going to be a distraction at the very least caused by some shareholders themselves that are expected to be unhappy and who may wish to force a change."

Sullivan said Microsoft may have shot itself in the foot by refusing to come up with the extra cash needed to seal the deal.

"If Microsoft's walkaway from the Yahoo deal is indeed a ploy to save five billion dollars, Microsoft CEO Steve Ballmer may have proven himself pennywise and pound foolish," Sullivan said.

Microsoft, Yahoo could reconcile

"He was prepared to spend billions to finally make Microsoft a serious rival to Google. For a bit more, he may have destroyed Microsoft's chance to get there."

Others said Microsoft did the smart thing by rejecting the deal.

"We applaud Microsoft's decision," said Robert Breza, analyst at RBC Capital Markets.

"We would expect Microsoft will look to other internet and media properties such as Facebook as they continue to integrate recent technology purchases including aQuantive. We would also not be surprised to see management announce a major spending initiative to increase its competitiveness."

Citigroup Analyst Brent Thill said Microsoft's move "is a win for its shareholders in the near term as investor attention will revert back to a strong enterprise product cycle opportunity."

But he said that due to the lack of alternatives to Yahoo in the marketplace, there is a 15% chance that both Microsoft and Yahoo can "reconcile their differences" and join forces.

- AFP