CEO Says Microsoft Could Forgo Yahoo

CEO Says Microsoft Could Forgo Yahoo
Ballmer's Work Force Grows Wary of Offer As Process Drags On

By ROBERT A. GUTH and KEVIN J. DELANEY
April 24, 2008

Steve Ballmer says Microsoft Corp. is willing to go it alone rather than buy Yahoo Inc. And he has a reason besides opposition from the Internet company: skepticism among his own employees.
Since Microsoft made its bid in late January, Microsoft's chief executive and other executives have circled the ranks of Yahoo shareholders and held informal talks with Yahoo executives in the hope that friendly talks can coax Yahoo into their arms.
Microsoft CEO Steve Ballmer, pictured at a press conference last month in Hanover, Germany, Wednesday said the original bid for Yahoo represents "a lot of money."
But the longer that process takes, the more Microsoft's rank-and-file workers and executives weigh the consequences of what would be Microsoft's largest acquisition ever -- and many are against it, say Microsoft employees and other people familiar with the company. A Microsoft spokesman declined to comment.
Employee sentiment and other concerns about the deal may not be strong enough to force Microsoft to reconsider its goal to buy Yahoo. But Mr. Ballmer, speaking in Milan Wednesday, appeared to be hedging his bets.
He said that the $44.6 billion value of Microsoft's original bid for the company "is a lot of money." He added that Microsoft is "prepared to move forward alone without Yahoo."
Such rhetoric, of course, is not uncommon as a negotiating tactic by a company hoping to hold the line on a deal price. But some Microsoft insiders say internal opposition to the Yahoo deal could limit the willingness of Microsoft to raise its Yahoo bid.
In Milan, Mr. Ballmer said Microsoft has no plans to boost a cash-and-stock offer for Yahoo that stood at $31 a share when announced Jan. 31. It is now valued at around $30.45 because of a subsequent fall in Microsoft's share price.
Microsoft is expected to give more direction on its Yahoo plans in coming days. Microsoft Chief Financial Officer Chris Liddell will have a chance to give details during the company's quarterly earnings call with analysts Thursday. Meanwhile, Saturday is a deadline Microsoft imposed on Yahoo on April 5 to enter friendly talks or face a hostile takeover. The two sides have talked, though haven't had any formal negotiations around price, say people familiar with the matter. Yahoo says Microsoft's offer undervalues it and some major Yahoo shareholders have suggested they want closer to $35 a share to do a deal.
Meanwhile, Microsoft has assembled a proxy slate of candidates to nominate to Yahoo's board in the event it pursues a hostile bid. The list has 10 nominees and three alternates, says a person familiar with the matter. The nominees include former Nextel Partners Inc. CEO John Chapple, former Grey Global Group Inc. CEO Edward Meyer, Jaynie Studenmund, the former chief operating officer of Overture Services Inc., which was later acquired by Yahoo, and former Adelphia Communications Corp. Chief Financial Officer Vanessa Wittman, according to people familiar with the matter. Ms. Studenmund declined to comment. Mr. Meyer, Ms. Wittman and Mr. Chapple didn't return requests for comment.
Inside Microsoft, unrest over the Yahoo deal is focused in two areas: people in Microsoft's online services group worried about their future and people in other Microsoft divisions who believe the task of absorbing Yahoo will divert top management's attention and other resources away from other pressing challenges, say the people familiar with the matter.
Concern about Yahoo is also fueling what some Microsoft employees say is high attrition in the company's online services group, in particular the teams who sell online advertisements.
Mr. Ballmer and other proponents of the deal have done little to communicate their thinking on the deal internally after an initial wave of statements, say people familiar with the company.
Separately, the U.S. Justice Department is reviewing whether a joint test of online services by Google Inc. and Yahoo is in compliance with antitrust law, according to a person close to the matter. The test is part of Yahoo's exploration of alternatives to being bought by Microsoft. A Justice spokesman declined to comment.