SAN FRANCISCO (Reuters) - Microsoft Corp is evaluating its bid for Yahoo Inc because the Internet company may have lost value since Microsoft made its offer, people familiar with the matter said on Friday.
The news, first reported by Reuters, sent Yahoo shares down more than 5 percent in extended trade.
The sources said Yahoo has lost some key personnel, making the company less valuable, while generous severance packages it handed out to executives and full-time employees in the case of a takeover have made it more expensive."
Go figure.
Update: Ok it looks like Microsoft is being more official about the whole thing now. Although they put it in nicer language than I might, they are basically saying that if Yahoo! doesn't play ball now they may be lowering their bid.
From Microsoft:
"Given these developments, we believe now is the time for our respective companies to authorize teams to sit down and negotiate a definitive agreement on a combination of our companies that will deliver superior value to our respective shareholders, creating a more efficient and competitive company that will provide greater value and service to our customers. 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.
It is unfortunate that by choosing not to enter into substantive negotiations with us, you have failed to give due consideration to a transaction that has tremendous benefits for Yahoo!s shareholders and employees. We think it is critically important not to let this window of opportunity pass."
Not only is it stupid for Yahoo! to continue to rebuff Microsoft's advances at this point, but their management very well may face shareholder lawsuits if Microsoft either ends up pulling out of the deal or actually lowering their bid. The more key employees that Microsoft loses in this transaction (remember Gates pointed to talented engineers as one of the reasons for the acquisiton) and the more that Microsoft ends up having to pay out in Yahoo! instituted severance, the more likely that Yahoo! management will end up stuck with shareholder lawsuits.
In fact, if Microsoft really wanted to play hard ball at this point they could simply give Yahoo 48 hours to accept the terms or pull the offer off of the table. With the offer off of the table Yahoo stock would immediately drop. The lawsuits would take place driving the stock down further and if Microsoft just waited 6 months or so they might be able to end up buying the stock in the end for somewhere around $8 a share.
