The New York Times and FT are reporting that Yahoo! (YHOO) will reject Microsoft’s (MSFT) bid as too low despite the fact that Redmond may lower its offer or start a proxy fight. The FT writes “The offer still undervalues us,” said one person close to Yahoo, after Microsoft hinted that it might reduce its original offer if Yahoo continued to turn its back on negotiations.
There is a certain stupidity and arrogance to Yahoo!’s position. While the company’s board will indicate that it is not opposed to a deal, it will say that Microsoft must raise its price. But, the case is extremely thin. Yahoo!’s price has fallen fairly consistently since early 2006 when it was $43. It made one brief spike to just over $33 last October, but that was on takeover rumors.
The other problem with any Yahoo! case for a higher value is that the company grew very little last year. Its operating income actually dropped from $941 million in 2006 to $685 million in 2007. That puts its operating margin at only 10%. With the economy is a steep drop, Yahoo! will not improve on that performance in 2008.
Douglas A. McIntyre
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