Yahoo ups the ante against Microsoft

Yahoo yesterday attempted to bolster its case for an improved offer from Microsoft, releasing stronger-than-expected financial projections to support its decision that the proposed deal had seriously undervalued it.

Analysts described the move as "too little, too late" and a sign that Yahoo was running out of options to thwart Microsoft's bid.

Microsoft made a cash-and-shares offer that was worth $44.6bn, or $31 a share, when it was ann-ounced on February 1, but its falling share price had reduced this to $28.95 a share by Monday's close.

Yahoo shares rose almost 7 per cent to $27.56 in midday trading in New York yesterday as its new estimates topped Wall Street forecasts.

The company said a three-year financial plan and strat-egic initiatives would double operating cash flow over the period from $1.9bn to $3.7bn and generate $8.8bn in revenues in 2010, excluding payments to third-party websites.

The financial plan was first presented to Yahoo's board in December, before Microsoft's unsolicited bid, but the company said it supported the board's determination that the offer undervalued Yahoo.

"In no uncertain terms, Yahoo is presenting its case to remain independent of Microsoft or, at minimum, support why the buy-out offer from Microsoft is insufficient," said Leland Westerfield, analyst at BMO Capital Markets.

Standard & Poor's said: "We think Yahoo has had considerable potential but strategic missteps and inconsistent execution restrained performance. This could be too little, too late."

Yahoo's hopes of finding a suitor more acceptable to its board have dimmed this month.

Rupert Murdoch, News Corp chief executive, said last week that he was "not going to get into a fight with Microsoft". A deal has been discussed in which News Corp would merge its MySpace social networking site and other internet assets into Yahoo in exchange for a stake in the company.

A combination with Time Warner's AOL internet service also seemed less likely last week after AOL said it was buying the Bebo social networking site for $850m, creating a big distraction to any merger with Yahoo.

Microsoft and Yahoo did sit down for their first face-to-face talks last week, according to reports, but no bankers were present.

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