Microsoft ponders next step in bid for Yahoo

Microsoft remained locked in deliberations late on Wednesday over its next move in the three-month battle for control of Yahoo, amid signs that it was edging towards launching a proxy fight to try to gain control of the internet company’s board.

The hesitation by the software company, which continued more than four days after an ultimatum it had issued to Yahoo to start talks expired, points to the difficult decision it now faces over whether to mount an all-out hostile offer.

It is even possible that the company will decide to drop its current offer altogether, said one person familiar with its thinking.

The indecision comes amid a stalemate in the tactical manoeuvring between the two companies, with each side still far apart on what Microsoft should pay in an acquisition.

There have been no direct negotiations over price in the three months since Microsoft launched its unsolicited cash-and-stock bid, according to two people close to the situation.

The issue has been broached informally by bankers representing the two sides, these people added, with the Microsoft side unwilling to increase its offer from the original $31 a share unless Yahoo agrees to enter serious negotiations, and the Yahoo camp holding out for a price of close to $40 a share.

Microsoft, for its part, has made little secret of the fact that it is willing to pay slightly more in return for an agreed deal, although the company has publicly followed the conventions of unsolicited takeover bids by insisting that it will not raise its offer.

Meanwhile, Yahoo’s board has held back from suggesting any price range for fear of being drawn into negotiations.

The lack of progress has left Microsoft searching for ways to pressure Yahoo into talks without risking damaging its own case, since an all-out hostile battle could add even more delay to any eventual deal.

Steve Ballmer, Microsoft’s chief executive officer, has also personally directed the campaign to withhold from all-out attack, according to one person close to the situation.

Rather than taking its offer direct to Yahoo shareholders, as the Microsoft chief had threatened in his ultimatum made to the internet company in early April, one option under review has been to take the first steps towards trying to unseat Yahoo’s board at the company’s next ann­ual meeting.

This would involve naming a slate of its own nominees for Yahoo shareholders to vote on.

In one sign that this tactic is being considered, the names of Microsoft’s nominee directors have been leaked in recent days.

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