Microsoft issues ultimatum

Microsoft fired off its ultimatum in a letter on 5 April, threatening to “take the case directly to shareholders” if an agreement is not concluded in the next three weeks. 

The letter reads, “[…] We believe now is the time for our respective companies to authorise teams to sit down and negotiate a definitive agreement on a combination of our companies […]. 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.”

Microsoft made its play for Yahoo at the beginning of February, saying that its initial bid represented a 62 per cent premium to Yahoo’s share price at the time.

However, Yahoo announced shortly afterwards that it would reject the bid, saying that the offer undervalued the company. 

Now, Microsoft is threatening to cut its bid if Yahoo does not come to the table. The software giant is warning that the offer may drop if it has to go direct to shareholders, and that Yahoo has “failed to give due consideration to a transaction that has tremendous benefits for Yahoo’s shareholders and employees.”

There has been speculation that the software firm may proceed via a hostile proxy fight, putting forwards its own lineup of directors for Yahoo’s upcoming board elections, and Microsoft’s letter also explicitly mentions this prospect. 

However, the source cited by Reuters as “a person familiar with the matter” said that Yahoo plans to tell Microsoft that, though not opposed to a deal, the offer should be increased. The source also claimed that Yahoo is expected to reject the suggestion in Microsoft’s letter that Yahoo’s performance is on the decline.