Yahoo pleads for time to counter Microsoft bid

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The Independent Online

Jerry Yang, the founder of the struggling internet giant Yahoo, has pleaded with shareholders to give him more time to find a money-spinning alternative to the proposed takeover by rival Microsoft.

Mr Yang, who returned as chief executive of Yahoo last summer, made his comments in a letter explaining why the board of directors had rejected Microsoft's $45bn £22.8bn) offer. He pledged to pursue initiatives to boost the ailing internet company's share price.

Publication of the letter came as Yahoo continued working furiously behind the scenes to wrap up an alternative proposal which would see it merge with the social networking site MySpace, owned by Rupert Murdoch's NewsCorp.

Analysts largely dismissed the letter as posturing and the talks with Mr Murdoch as a "long shot" – but Mr Yang reiterated that Yahoo could and would be a strong, independent, company. He said: "Today, Yahoo is a faster moving, better organised, more nimble company than it was just a few months ago. We have accomplished a great deal in a very short time and we are focused on building this momentum.

"Most importantly, I want you to know that your board is continuously evaluating all of Yahoo's strategic options in the context of the rapidly evolving industry environment. We remain committed to pursuing initiatives that maximise value for all our stockholders."

Mr Murdoch and Peter Chernin, his right-hand man at NewsCorp, discussed a deal with Mr Yang at dinner last week in the wake of the unsolicited takeover offer by Microsoft. Their advisers are examining the option of merging MySpace and NewsCorp's other internet businesses into Yahoo in return for a 20 per cent stake in the company. Under the deal, Yahoo would have to outsource advertising sales on its search engine business to Google, which already has an alliance with MySpace. The two sides have examined similar plans several times over the past 18 months. The talks always foundered because of differences over valuations of the various assets. NewsCorp is said to be demanding that any deal includes a $10bn price tag on MySpace, which it bought for $580m in 2005. Even insiders say the proposal is a "long shot" and the response from some investors and analysts was scathing yesterday.

Ken Smith, a Yahoo shareholder and director of technology investment at Munder Capital Management, said he preferred Microsoft's offer. "I don't see what [NewsCorp's offer] brings to the table for Yahoo or NewsCorp," he said. "NewsCorp has a lot of [internet] traffic but it is having trouble monetising it."

Laura Martin, a media analyst at Soleil Securities, said Yahoo should not do a deal which involved outsourcing its search business to Google, because it was key to Yahoo's long-term growth. "If NewsCorp sells all of its internet assets to Yahoo, it is left with the stodgy, slow-growth newspaper and television assets plus a 20 per cent passive interest in Yahoo, which would become a poorly managed internet firm with no strategic future.

"We give this deal a 20 per cent chance of being the winning strategy over a higher Microsoft bid."

Michael Nathanson, of Sanford C Bernstein, told clients yesterday: "Perhaps NewsCorp sees major cost savings by allowing MySpace to ride over Yahoo's technology platform and global scale and/or revenue synergies from combining sales efforts and advertising networks. Either way, given Yahoo's interest in exploring alternatives, what is the harm of talking?"

Microsoft may raise its offer to tempt Yahoo into an agreed takeover, but it could also decide to go hostile.

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