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Tue 12 Feb 2008 05:18 PM

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Yahoo! rejects Microsoft offer

Yahoo! turns down Microsoft buy out stating offer price undervalues the company

Yahoo! has rejected Microsoft's takeover bid, its board announced late on Monday.

The Yahoo! board issued a statement saying that Microsoft's offer of $31 per share "substantially undervalues" the company. The board has been reported as looking for a valuation of closer to $40 per share.

In response, Microsoft issued a statement that saying that it was "unfortunate" that Yahoo! had chosen to reject the offer, and warning: "Microsoft reserves the right to pursue all necessary steps to ensure that Yahoo!'s shareholders are provided with the opportunity to realize the value inherent in our proposal."

Analyst firm IDC still believes a merger is likely, but not a hostile takeover.

"IDC believes that a Microsoft-Yahoo! merger is the best of the options available today for both companies, their shareholders, users and advertisers. A combined Microsoft-Yahoo! entity would have a net US advertising market share of about 17% based on data from the fourth quarter of 2007 (4Q07). While a Microsoft-Yahoo! merger would not completely level the playing field with Google (which is holding a net U.S. advertising market share of 24%), IDC believes it would give Microsoft and Yahoo! a much better fighting chance than if they went it alone," Karsten Weide, IDC Program Director, Digital Media and Entertainment.

"IDC does not think a hostile takeover is likely. Even in a friendly merger, there would be defections in Yahoo!'s ranks. In a hostile takeover bid, there would be more, perhaps too many, and it would also poison the relationship to a point where a productive merging of Yahoo! into Microsoft would be difficult in the extreme," he added.

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