Microsoft not only option, Yahoo says

Jerry Yang, Yahoo chief executive, on Wednesday tried to boost declining morale at the besieged internet company, by telling staff in a message that a number of alternatives to Microsoft’s bid were being considered.

Mr Yang broke four days of silence on Microsoft’s unsolicited approach, valued at $42.2bn at Tuesday night’s close, to send an e-mail to all “yahoos”.

“Our board is thoughtfully evaluating a wide range of potential strategic alternatives in what is a complex and evolving landscape.”

Mr Yang gave no details of Yahoo’s other options, but the list of potential “white knights” has been shortening, with News Corp and NBC this week ruling out any approach, and Comcast and AT&T also thought to be not interested.

His e-mail came as Yahoo insiders voiced concern over low morale, a lack of leadership and the possibility of paralysis in product development at the Silicon Valley company.

Their feelings were echoed by Barry Diller, chairman of rival InterActive Corp, on a fourth-quarter earnings call on Wednesday.

“I don’t think many people at Yahoo are concentrating much on innovation at the moment. I think the same is true at Microsoft,” he said.

He added that his Ask search engine should benefit from Microsoft and Yahoo’s distraction.

In his message, Mr Yang mentioned a new product launch by Yahoo’s Zimbra e-mail subsidiary and announcements due at the Mobile World Congress in Barcelona next week as evidence that Yahoo was maintaining momentum.

He said the board was “going to take the time it needs to do [its review process] right . . . we’ve hired top advisers to assist through the process.”

Yahoo is being advised by investment bankers Goldman Sachs and Lehman Brothers, by legal firm Skadden Arps and has brought in public relations groups Abernathy McGregor and Robinson Lerer & Montgomery.

But Yahoo’s delay in responding directly to last Friday’s offer from Microsoft suggests it may have few realistic alternatives, analysts believe.

Mark Mahaney, internet analyst at Citigroup, outlined five scenarios for Yahoo in a note.

He said the most likely was that Yahoo would reject Microsoft’s bid but then accept a higher offer, although there was also a good chance that the existing bid could be accepted.

The second most likely scenario was that Yahoo would outsource search to Google to boost its revenues.

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