Yahoo shares tumble after Microsoft pulls offer

Shares of Yahoo fell15 per cent onMonday as hopes for the once dominant search engine dimmed on the withdrawal of a $43.7-billion US bid from Microsoft Corp. over the weekend.

Yahoo Inc. chief executive Jerry Yang is convinced the company he started in a Silicon Valley trailer 14 years ago was worth more than the money Microsoft Corp.had offered for the internet pioneer.

Now he may only have a few months to convince Wall Street that his rebuff of Microsoft's takeover bid was a smart move and if he can't, analysts won't be surprised if Yang is either replaced as CEO or forced to consider accepting a lower offer if Microsoft comes knocking at his door again.

"This squarely puts the pressure on Jerry Yang to deliver results and shareholder value," Standard & Poor's equity analyst Scott Kessler said. "You are going to see a lot of shareholders just throwing in the towel because they are going to realize it's going to take awhile for the stock to get back to where it was Friday."

Yahoo shareslost $4.30 to finishat $24.37on Nasdaq.

After trading up for most of the day, Microsoft's shares slipped 16 centsto $29.08. The shares had declined 10 per cent to $29.24 since the bid, reflecting concerns that the proposed marriage would turn into a complicated mess that would enable Google Inc. to grow even stronger.

Yahoo shares finished last week at $28.67, slightly less than the $29.40 per share that Microsoft was offering before chief executive Steve Ballmer agreed to raise the offer to $33 per share in a last-ditch effort to get a deal done.

Disillusioned shareholders are bound to question whether the rejection of Microsoft's sweetened offer was driven more by emotion and ego than sound business sense.

"Clearly there's frustration," said Darren Chervitz, co-manager of the Jacob Internet Fund, which owns Yahoostock."I am not even sure if Yahoo cares about its shareholders because they didn't show much regard for shareholders' best interests in this process."

Despite such negative sentiment, Yahoo shares are unlikely to immediately fall back to their $19.18 pre-bid price, partly because some investors may still be holding out hope that the software maker will renew its takeover attempt if Yahoo continues to struggle.

Accompanied by fellow Yahoo co-founder David Filo, Yang flew to Seattle on Saturday to inform Ballmer that the company wouldn't sell for less than $37 per share a price that Yahoo's stock hasn't reached since January 2006.

Analysts and investors were left to wonder why the two sides couldn't compromise at $35 per share.

"They really didn't seem that far apart," Chervitz said. "There is probably blame to go around on both sides, but I think most of it is in Yang's hands."

To win the faith of shareholders, Yang will have to execute a turnaround plan that he began drawing up nearly a year ago after he replaced Terry Semel as CEO amid shareholder angst about the company's financial malaise.

Ballmer also will be under the gun to prove he can come up with another way to challenge Google's dominance of the internet's lucrative search and advertising markets.

The unsolicited bid was widely seen as Ballmer's admission that Microsoft needed Yahoo's help to upgrade its unprofitable internet division.

Microsoft could look elsewhere: analysts

Analysts now expect Ballmer to use the money he had earmarked for the Yahoo acquisition to explore other possible deals with large internet companies like Time Warner Inc.'s AOL and News Corp.'s MySpace and promising startups like Facebook Inc. and LinkedIn Corp.

Microsoft already owns 1.6 per centof Facebook, the second-largest social network behind MySpace.

But Ballmer is unlikely to be under as much duress as Yang, 39, who has promised that Yahoo's development of a more sophisticated and far-flung internet advertising platform will produce net revenue growth of at least 25 per cent in 2009 and 2010.

That would be a dramatic improvement, considering that Yahoo's revenue rose by 12 per cent last year and is expected to grow at about the same pace this year.

Analysts, though, are skeptical about whether Yahoo will be able to hit those targets, raising the chances for a shareholder rebellion if the company stumbles in the next two quarters a distinct possibility if advertisers curtail spending in a shaky U.S. economy, as many analysts fear.

As it is, Yang and the rest of Yahoo's board almost certainly will face more lawsuits from incensed shareholders.