Week in review: Yahoo snubs Microsoft

Yahoo thinks it's worth more, Danger is a buy, and BlackBerry is temporarily bye-bye. Also: Spying immunity for telcos.

For Yahoo, Microsoft's price isn't right.

But it appears that the companies' buyout battle has only begun.

In an announcement that had been expected, Yahoo's board of directors rejected Microsoft's $44 billion takeover offer, saying it undervalues the company. Yahoo said its board will continue to evaluate its strategic options and pursue a path to "maximize value for all stockholders."

Microsoft now has two paths it can take to buy Yahoo, according to some analysts, investors, and proxy solicitors. The software giant can up the ante on its initial buyout bid of $44.6 billion and hope that Yahoo will bite, or try the one-two punch approach of a tender offer followed by a proxy fight for control of Yahoo's board of directors.

While analysts believe that the company has a few other moves up its sleeve before it submits its best and final offer, Microsoft appears to be posturing for a fight. Some have said the company is likely willing to up its bid from $31 to at least $35 a share.

Yahoo shareholders could try to intervene, creating a situation similar to the one BEA Systems faced last year, to negotiate a deal. Absent a higher bid, Microsoft is likely to deliver that one-two punch, some proxy solicitors say. Yahoo's entire 10-member board is up for re-election at the next annual shareholders meeting.

The idea of an increased bid sounds good to Yahoo's second-largest shareholder, who said Microsoft will need to "enhance its offer" to complete the deal and that Yahoo will be in a "tough spot" if it wants to remain independent.

That judgment was included in the latest Legg Mason Value Trust newsletter by Bill Miller, the chief investment officer of Legg Mason Capital Management, which holds more than 80 million Yahoo shares.

However, Yahoo continues to look for alternatives. According to a source familiar with the matter, News Corp. and Yahoo have been in talks about forging some kind of a deal that would counter Microsoft's offer. The source did not divulge details of the talks, and a Yahoo representative declined to comment.

Many CNET News.com readers believe that Yahoo is just delaying the inevitable, and one reader says Yahoo employees aren't happy about it.

"The smell of fear and rage is pervasive on campus," wrote one News.com reader to the TalkBack forum. "They might as well have been told the Mansons were buying the place."

Additionally, Yahoo laid off more than 1,000 employees this week. One source inside the company said the number was 1,100, which is slightly higher than expected. The layoffs bring the head count down to about 13,200 employees.

However, sources inside the Internet company suspect that more cutbacks could be in the offing in the coming weeks.

Plugged in and disconnected
Yahoo isn't the only company on Microsoft's shopping list this week. The software giant is acquiring Danger, the Palo Alto, Calif.-based maker of the T-Mobile Sidekick, for an undisclosed amount. However, according to technology journalist Om Malik, the price tag for the company was $500 million.

Danger's Sidekick handles many of the same functions that business-oriented smartphones handle--Web browsing, e-mail, and instant messaging--but it does so in a way that has been more popular with executives' kids than with businesspeople themselves.

The challenge for Microsoft, though, is that Danger has its own operating system, distinct from Windows Mobile, as well as a completely different way of doing business than Microsoft.

Meanwhile, Monday's widespread BlackBerry outage--the second major one in the past 12 months--left Research In Motion customers without access to e-mail messages for about three hours. The company blamed "a problem with an internal data routing system within the BlackBerry service infrastructure that had been recently upgraded," according to the statement.

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