Microsoft/Yahoo deadline passes with no deal

Yahoo failed to agree to an acquisition deal with Microsoft by Saturday, the
deadline Microsoft had set for wrapping up negotiations.

Now Microsoft must decide whether to pursue a hostile takeover via a proxy
fight or to drop the bid and seek other acquisition alternatives.

All along, Microsoft's management had indicated strongly that they would pursue
Yahoo via all available options, including the hostile route of ousting the
current board by proposing its own slate of director candidates at the next
Yahoo shareholders' meeting.

But Microsoft CEO Steve Ballmer and CFO Chris Liddell softened that stance
in public comments last week, saying that giving
up on the acquisition would also be an option.

On Sunday, Yahoo declined to comment. Microsoft responded by pointing to comments
Liddell made on Thursday during Microsoft's earnings announcement.

"Unless we make progress with Yahoo towards an agreement by this weekend,
we will reconsider our alternatives. We will provide updates as appropriate
next week, these alternatives clearly including taking an offer to the Yahoo
shareholders, or to withdraw our proposal and focus on other opportunities,
both organic and inorganic," Liddell said then.

Citing anonymous sources, The Wall Street Journal reported Sunday that Microsoft,
Yahoo and their advisers have held talks in recent weeks but didn't achieve
enough progress to hammer out a deal by Saturday.

The process has clearly been frustrating for Microsoft's management, who have
maintained that their offer is fair and that they don't see a reason to revise
it. Ballmer and his team have shown signs of getting impatient with the slow
progress, not surprising considering Microsoft's urgency at boosting its underperforming
Internet business and competing better against Google.

Launching a proxy fight would prolong even further the acquisition process
and make the fight even nastier. Even if Microsoft were to win, it would not
be a good start to what would be an arduous and lengthy post-acquisition integration
process.

In the meantime, Google would no doubt seek to capitalize on the internal turmoil
within Microsoft and Yahoo by trying to poach clients and valuable employees.

As soon as Microsoft announced
its bid for Yahoo on Feb. 1 -- valued at US$44.6 billion at the time --
Yahoo's management began seeking and considering alternatives, while its stock
began to rise from the latest pre-bid price of $19.18.

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