Yahoo's Lesson in Stalling a Hostile Takeover

In extending its board nomination deadline, Yahoo is biding its time as it seeks to find an alternative to Microsoft's purchase offer, analysts say.

Yahoo is extending a deadline for nominating candidates to its board, a move that analysts see as a stall tactic as Yahoo negotiates to make a deal with another company, or a bluff to get Microsoft to sweeten its bid to buy the company for $31 per share.

Yahoo said in a statement March 5 it is extending the deadline from March 14 to 10 days following the public announcement of the date for Yahoo's 2008 annual meeting of stockholders.

The company, which has been sued by at least seven investors for rejecting Microsoft's original $44.6 billion bid made Feb. 1, has yet to set the date for the meeting.

This action will allow the board to pursue "strategic alternatives" while putting off any proxy fight Microsoft might trigger to install its own board to facilitate a deal.

However, Yahoo colored the extension as a play to give stockholders who want to nominate one or more directors, including Microsoft, more time. Yahoo officials that they will not prevent any party from nominating directors at any time prior to the new deadline.

RBC Capital Markets analyst Jordan Rohan told eWEEK that Yahoo management is stalling, "grasping at straws right now" to come up with something better. Yahoo, which is believed to want $40 per share to accept an offer, could be trying to get Microsoft to up the bid, but Microsoft would most likely vote not to.

Rohan also said he doesn't see any white knights on the horizon for Yahoo, noting that Microsoft's offer has a "large competitive cache and a stable underlying equity. Everyone else would be talking about merging assets into Yahoo and it's just not the same thing."

The timing of the move is curious, coming the same day a report surfaced in the Wall Street Journal claiming Yahoo and Time Warner were discussing folding Time Warner's struggling AOL property into Yahoo. Time Warner would take a minority stake in the combined company.

The Journal said Google supported this, but Google declined to comment for eWEEK.

Should Yahoo and AOL merge, the entity could better challenge Google in the search and advertising market. Google is likely more inclined to accept this alliance because it would pose far less a threat than a combination of Yahoo and Microsoft, No. 2 and No. 3 in search, respectively.

By extending the deadline for board nominees, Yahoo wants to keep its options open with regard to nominating Time Warner candidates to the board should a deal with AOL happen, or at least they want Microsoft to think that they do, IDC analyst Karsten Weide told eWEEK.

"I don't really see how a Yahoo/AOL [deal] could provide stakeholders with more value than the MSFT offer (or any other offer)," Weide said in an e-mail. "It is most likely the attempt to exert pressure on MSFT to sweeten their bid."

Rohan said Microsoft should be snapping up shares of Yahoo right now to pose a further threat, and then negotiate directly with any large Yahoo shareholders to buy their shares. "Those people want the deal to be done in most cases, otherwise the stock's going back down to the teens," Weide said.

Asked if Microsoft is concerned about triggering Yahoo's poison pill, which would severely dilute the ownership of Yahoo shares for any investor who acquired 15 percent of Yahoo's stock, Rohan said Yahoo's actions so far are not concerning to him, citing the stalling and the extension of severance pay to employees in case of an acquisition.

"The only people who have much to risk are the people who may lose their jobs, and it's not clear to me which set of people would lose," he said.