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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 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 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.

Representatives of AT&T and Verizon Wireless told several media outlets that, from what they understood, all wireless carriers in North America that work with RIM were affected. The last time an outage of this magnitude occurred, in April, RIM blamed a database problem that snowballed when the backup "failover" process didn't work as planned.

In another disconnect--this one planned--Starbucks ended its Wi-Fi partnership with T-Mobile in favor of one with AT&T.

Under the earlier plan with T-Mobile, Starbucks customers needed a paid subscription to access the in-store Wi-Fi service, and T-Mobile HotSpot subscribers will continue to have access to Starbucks Wi-Fi, thanks to an agreement between AT&T and T-Mobile.

But the new AT&T plan gives all customers two free hours per day, with a $3.99 fee for additional two-hour chunks of time. Monthly subscriptions will cost $19.99 and will enable access to other AT&T hot-spot locations in addition to Starbucks. AT&T broadband customers also will be able to surf at the more than 7,000 Starbucks locations in the U.S. for free.

The spotlight was also on mobile broadband gear, services, software, and strategies at the GSMA Mobile World Congress in Barcelona, Spain. Read CNET's full coverage here.

Politicians on the line
In a setback for privacy and civil-liberties groups, the U.S. Senate voted to protect telephone and Internet companies from lawsuits alleging illegal cooperation with government spy agencies.

By a 31-to-67 vote, senators failed to approve a Democrat-sponsored amendment that would have allowed lawsuits to continue against AT&T and other telecommunication companies accused of illegal activities.

Because the broader bill being considered currently includes retroactive immunity for those companies--something that President Bush had personally requested--scores of pending legal challenges, including high-profile cases against AT&T and Verizon, are likely to disappear if the entire Congress ultimately approves it.

Republicans in the House of Representatives also scuttled an attempt to grant a temporary extension to a controversial wiretap law that did not include retroactive immunity for telecommunications companies.

By a 191-to-229 vote, the House failed to approve a bill to extend the Protect America Act for 21 days in its current form. The law--which Republicans say is necessary to allow interception of communications--is scheduled to expire on Saturday.

The vote came hours after President Bush's call for including retroactive immunity for any companies that may have violated federal privacy laws by opening their networks to the National Security Agency. Lawsuits against companies such as AT&T are currently pending in federal court.

The debate goes back to a New York Times report in late 2005 that the president had authorized the National Security Agency to conduct wiretaps, allegedly involving Americans' conversations and Internet communications, without a court order. The news ultimately led to proposed changes to a 1978 law known as the Foreign Intelligence Surveillance Act, or FISA.

Meanwhile, Comcast, AT&T, and other network operators would be expected to refrain from "unreasonable discriminatory favoritism" of content on their pipes under a recrafted Net neutrality proposal introduced in the U.S. House of Representatives. But this time around, the new bill isn't directly forcing Internet service providers to follow specific rules.

The new bill is an apparent effort to be less prescriptive than previous efforts, which failed in a Republican-dominated Congress two years ago. The modified approach is an apparent attempt to address the howls of protest from network operators, who have argued that previous Net neutrality bills in Congress amount to unnecessary Internet regulations.

Also of note
Microsoft made its leadership changes official, promoting more than a dozen executives and confirming the departure or pending departure of three top executives...Netflix announced that it would begin to phase out HD DVD rentals in favor of rival Blu-ray discs on the same day that Best Buy said it will prominently display Blu-ray players and discs in its stores and recommend the format over rival HD DVD. Wal-Mart followed Friday with announcement that by June, it would no longer have HD DVD titles in stock...Google released a new version of the software development kit for its open mobile platform called Android.