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By Miguel Helft
Microsoft warned the board of Yahoo on Saturday that if a merger agreement was not completed in the next three weeks, Microsoft would make its offer directly to Yahoo shareholders, probably at a lower price.
The warning was made by Microsoft's chief executive, Steven A. Ballmer, in a letter sent by e-mail. It expressed dismay at Yahoo's refusal to enter into formal negotiations over Microsoft's Jan. 31 takeover bid and warned that without an agreement by the deadline, Microsoft would seek to oust Yahoo's board.
"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," Mr. Ballmer wrote. "If we are forced to take an offer directly to your shareholders, that action will have an undesirable impact on the value of your company from our perspective, which will be reflected in the terms of our proposal."
Yahoo declined to comment.
Microsoft's offer, in cash and stock, was initially valued at $44.6 billion, or $31 a share. After a decline in Microsoft's shares, it is now worth about $42 billion.
Yahoo's board formally rejected Microsoft's offer, saying it "substantially undervalues" Yahoo. Microsoft described the offer, at a 62 percent premium over Yahoo's closing price on Jan. 31, as generous and has been steadfast in its refusal to raise it.
Mr. Ballmer also noted that in the two months since the company made its offer, the overall stock market has deteriorated and Yahoo's business has appeared to weaken.
"By any fair measure, the large premium we offered in January is even more significant today," Mr. Ballmer wrote. "We believe that the majority of your shareholders share this assessment, even after reviewing your public disclosures relating to your future prospects."
Mr. Ballmer acknowledged that Yahoo has been exploring alternatives to Microsoft's offer. In recent months, Yahoo has discussed possible partnerships or combinations with Google, AOL and the News Corporation in attempts to fend off Microsoft. Some of those conversations are continuing, according to people familiar with the matter.
But Mr. Ballmer said that Microsoft's offer was the "only alternative put forward that offers your shareholders full and fair value for their shares, gives every shareholder a vote on the future of the company, and enhances choice for content creators, advertisers and consumers."
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