Yahoo Shares Tumble

SAN FRANCISCO — Yahoo shares fell 15 percent Monday as hopes for the once-dominant Internet icon dimmed following Microsoft's withdrawal of a $47.5 billion takeover bid.

The sell-off wiped out nearly half the gain in Yahoo Inc.'s stock price since Microsoft Corp. made its initial offer on Jan. 31 in an effort to challenge online advertising and search leader Google Inc. The downturn left Yahoo's market value about $14 billion below Microsoft's last offer.

Last-ditch talks between Yahoo and Microsoft were fruitless, leading Microsoft to walk away from a deal Saturday.

Yahoo shares shed $4.30 on Monday to close at $24.37, well below Friday's close of $28.67, when investors were still hopeful about a deal.

Despite the backlash, analysts doubt Yahoo shares will fall back to their $19.18 pre-bid price, partly because some investors may still be holding out hope that the software maker will renew its takeover attempt if Yahoo continues to struggle.

Google shares rose $13.61, or 2.3 percent, to close at $594.90. The company not only averted a marriage it had fiercely objected but also began discussions that could lead to a long-term advertising partnership with Yahoo, a deal made more likely with Microsoft's withdrawal. Any Google-Yahoo alliance, though, would likely face antitrust hurdles.

Meanwhile, shares in Microsoft fell 16 cents, or 0.6 percent, to close at $29.08. The shares had declined 10 percent to $29.24 since the bid, reflecting concerns that the proposed marriage would turn into a complicated mess that would enable Google to grow even stronger.

Yahoo Chief Executive Jerry Yang remained convinced that the company he started in a Silicon Valley trailer 14 years ago, was worth more than the money Microsoft had offered.

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Now he may only have a few months to convince Wall Street that his rebuff of Microsoft's takeover bid was a smart move _ and if he can't, analysts won't be surprised if Yang is either replaced as CEO or forced to consider accepting a lower offer if Microsoft comes knocking at his door again.

"This squarely puts the pressure on Jerry Yang to deliver results and shareholder value," Standard & Poor's equity analyst Scott Kessler said. "You are going to see a lot of shareholders just throwing in the towel because they are going to realize it's going to take awhile for the stock to get back to where it was Friday."

In a posting Sunday night on Yahoo's blog, Yang welcomed the added pressure. "We know the spotlight will probably stay on us for a while," Yang wrote. "That's fine _ we have a clear path ahead and momentum to build on." He added the Microsoft saga had turned Yahoo into "a stronger, more focused company with an even greater sense of purpose."

Yahoo shares finished last week at $28.67, slightly less than the $29.40 per share that Microsoft was offering before Chief Executive Steve Ballmer agreed to raise the offer to $33 per share in a last-ditch effort to get a deal done.

Disillusioned shareholders are bound to question whether the rejection of Microsoft's sweetened offer was driven more by emotion and ego than sound business sense.

"Clearly there's frustration," said Darren Chervitz, co-manager of the Jacob Internet Fund, which owns Yahoo stock. "I am not even sure if Yahoo cares about its shareholders because they didn't show much regard for shareholders' best interests in this process."

In his blog posting, Yang defended the board's handling of the Microsoft bid and branded some of the criticism as "a lot of nonsense and misinformation."

"We clearly indicated to Microsoft that we were open to a transaction but only if it were on terms that fully recognized the value of Yahoo and was in the best interests of our stockholders," Yang wrote.

Accompanied by fellow Yahoo co-founder David Filo, Yang flew to Seattle on Saturday to inform Ballmer that the company wouldn't sell for less than $37 per share _ a price that Yahoo's stock hasn't reached since January 2006.

To win the faith of shareholders, Yang will have to execute a turnaround plan that he began drawing up nearly a year ago after he replaced Terry Semel as CEO amid shareholder angst about the company's financial malaise.

Ballmer also will be under the gun to prove he can come up with another way to challenge Google's dominance of the Internet's lucrative search and advertising markets.

The unsolicited bid was widely seen as Ballmer's admission that Microsoft needed Yahoo's help to upgrade its unprofitable Internet division.

Analysts now expect Ballmer to use the money he had earmarked for the Yahoo acquisition to explore other possible deals with large Internet companies like Time Warner Inc.'s AOL and News Corp.'s MySpace and promising startups like Facebook Inc. and LinkedIn Corp. Microsoft already owns a 1.6 percent in Facebook, the second-largest social network behind MySpace.

But Ballmer is unlikely to be under as much duress as Yang, 39, who has promised that Yahoo's development of a more sophisticated and far-flung Internet advertising platform will produce net revenue growth of at least 25 percent in 2009 and 2010.

That would be a dramatic improvement, considering that Yahoo's revenue rose by 12 percent last year and is expected to grow at about the same pace this year.

Analysts, though, are skeptical about whether Yahoo will be able to hit those targets, raising the chances for a shareholder rebellion if the company stumbles in the next two quarters _ a distinct possibility if advertisers curtail spending in a shaky U.S. economy, as many analysts fear.

To help boost its short-term profits and its stock price, Yahoo is widely expected to form a long-term advertising partnership with Google.

Although the final details are still being ironed out, Yahoo wants to hire Google to place some of the text-based ads that appear alongside the search results on its Web site. It's a task that Google already handles for scores of Web sites, including AOL and Ask.com.

But turning to Google for help would be a humbling step for Yahoo after spending more than $2 billion to acquire and build its own technology.

An alliance between Google and Yahoo also would face antitrust hurdles because the two companies combined control more than 80 percent of the U.S. search advertising market.

Yahoo also has been exploring a possible merger with AOL's Internet operations but may now have to contend with a competing offer from Microsoft.

Comments

[whatsmyname]

I'd say (by) this fall, Yahoo's members will have left them just as they did with the auction. I mean, how do you screw up an auction? Ebay, was so ready to be knocked off and pushed aside that it was pathetic...... For the longest time Ebay, has gleaned usable information derived from member's posting/listings, and then formulated the same thing under their name. They simply did NOT have a "lock" on the auction biz. I, along with other auctioneers use to laugh at how dumb some of the so- called rules were and how ignorant the bidders could be. No, Ya hoo, simply played to long at not being serious and you're correct when you say they'll soon be 'toast.' They're now like that gal that's "done" everybody at the dance -nobody wants or needs to -go steady, now!

[whatsmyname]

Why yahoo? This is so typical of American businesses wanting to dominate, to monopolize a market and an entire industry. Maybe that's why Bill Gates, Ballmer et al Microsoft, are so hated; the products are terribly chep and Gates himself has no class whatsoever. Can you imagine buying a new car and everytime you began to start it you had to hear a few minutes of commercials? What a white trash with money kinda guy that Gates is, huh? Ballmer, is no salesman and if he were in the ring he'd be classified as a slugger. And, everyone knows a boxer beats a slugger -everytime!

[adamwho]

Yahoo deserves to fail. Their whole organization is one big Kludge. Poor interoperability between applications, stovepipe departments, no company wide best practices.

[whatsmyname]

EGO IS THE WORST KNOWN DRUG TO HUMANS! AND, THIS ADDICTION IS THE WORST DRUG AND Yang, so I along with others have observed for a few years -is a victim and a product of "it" all at the same time. Sad, sad commentary, isn't it?

[governor67]

First, I was surprised at how rich this offer was. Then, I was surprised MS was willing to up the ante. In the final analysis, I'll be mostly surprised if this (walking away from $33. per share) doesn't go down in history as Yahoo's biggest blunder of all time. My bet is, this time next year, Yahoo will be trading under $20.

[LittleSanityLeft]

They definitely over sold their position. Idiots.

[Americanium]

Next year?? by the end of May their stock will be toast.

[whatsmyname]

Gov...I think your thinking is terrific and I don't know too many that would touch that bet. but, do know, Yang, don't know Ying about most American things (as in know the nitty-gritty of business in the trenches) He made a huge mistake with his Yahoo Auction and was slow close to being a success but didnm't EVEN KNOW IT. That's the kind of mentality he is; a case of somebody with more money than brains. See, he learned everything in the first few months of business in that trailer, and well -forgot to "Keep a goin."

[handyallen1]

i was shocked to see ms up there bid for this over the hill company then amazed to see yahoo reject it what fools yahoo is toast anyone can see that sheeeesh