Microsoft is gearing up to take its bid to acquire Yahoo directly to the Silicon Valley company's shareholders after the expected rejection by the Yahoo board of the software giant's $31 per share (€21.35) offer.
Yahoo intends to officially turn down the unsolicited bid today, according to a source close to the situation.
While the moves pointed towards the possible outbreak of a protracted and bloody takeover battle, they are seen in some quarters as the opening shots in a negotiation over how much Yahoo is worth, and what Microsoft should pay to win control.
Yahoo's board held its first formal meeting on Friday to discuss the February 1st cash-and-shares offer, which is currently valued at $41.8 billion. It has decided that what is on the table massively undervalues the company, said the source.
The company is expected to send a letter to Microsoft detailing its position, including a concern that any takeover could be overturned by regulators.
It is understood Yahoo would be unlikely to give serious consideration to an offer of less than $40 per share.
That would add $12 billion more to the price Microsoft has to pay. Microsoft has seen the value of its own shares fall 12 per cent since it made the bid.
Microsoft had been willing to pay $43 a share a year ago, when Yahoo was trading at about $28, according to a person familiar with the months of on-again, off-again talks between the two. Yahoo was trading at about $19 just before Microsoft's bid.
Yahoo's rejection of the offer could set the scene for a protracted struggle for the company. Microsoft could launch a proxy contest and seek to replace Yahoo's board at its annual meeting in June.
Steve Ballmer, Microsoft chief executive, has already signalled his company's determination not to take no for an answer.
In his letter making the offer, he said his company "reserves the right to pursue all necessary steps".
Microsoft has a team of advisers in place for any proxy fight. It includes proxy solicitation firm Innisfree. Yahoo is using MacKenzie Partners, a proxy firm that would lobby shareholders to try to secure support for the current board.
