Microsoft gives Yahoo an ultimatum

Gives 3-week deadline

7 April 2008 10:59 GMT / By Katie Scott

Accept our offer in the next 3 weeks, or we'll lower it and go straight to your shareholders, is the threat being made by Microsoft as Yahoo continues to fight off its advances.

There had been reports that the two companies had sat down to discuss Microsoft's $42 billion bid, but that Yahoo's execs are insisting that the offer is too low.

Now Microsoft's chief exec, Steve Ballmer, has thrown down the gauntlet and, in a letter, not only laid down an ultimatum but also threatened to go above the Yahoo board's heads.

He writes: "It has now been more than two months since we made our proposal to acquire Yahoo at a 62% premium".

"Our goal in making such a generous offer was to create the basis for a speedy and ultimately friendly transaction. Despite this, the pace of the last two months has been anything but speedy."

He also implied in the letter to Yahoo's board that Yahoo has actually gone down in value since the initial bid.

He writes: "During these two months of inactivity, the internet has continued to march on, while the public equity markets and overall economic conditions have weakened considerably, both in general and for other internet-focused companies in particular".

"At the same time, public indicators suggest that Yahoo's search and page view shares have declined. Finally, you have adopted new plans at the company that have made any change of control more costly."

And the letter ended in a clear threat.

Ballmer writes: "If we have not concluded an agreement within the next three weeks, we will be compelled to take our case directly to your shareholders, including the initiation of a proxy contest to elect an alternative slate of directors for the Yahoo board".

"It is unfortunate that by choosing not to enter into substantive negotiations with us, you have failed to give due consideration to a transaction that has tremendous benefits for Yahoo's shareholders and employees."

"We think it is critically important not to let this window of opportunity pass", he concludes.

Yahoo is expected to respond today.