Did Microsoft offer $40; should Yahoo have disclosed it?
Posted
Feb 13 2008, 08:04 PM
by
Charley Blaine
Rating:
In the wake of Yahoo's rejection of Microsoft's $31-a-share, or $44.6 billion, takeover offer, there's been much speculation about what price Yahoo might accept from Microsoft. (Microsoft is the publisher of MSN Money.)
The figure of $40 a share was mentioned in several news reports last weekend. An Associated Press report cited a source close to Yahoo who said that Microsoft had offered $40 in February 2007.
Bill Miller, the manager of the Legg Mason Value Trust mutual fund, mentioned it in his quarterly letter to the fund's shareholders, released on Tuesday: "It has been reported that MSFT has been discussing a combination with YHOO for well over a year, and that it had been prepared to pay over $40 per share previously."
Legg Mason is Yahoo's second-largest shareholder, and Miller believes Microsoft should boost its bid.
So, at what point does a company have an obligation to report an offer and a dollar figure to its shareholders? And, more important, were Yahoo's shareholders poorly served by the decision not to disclose Microsoft's offer?
It's not clear how formal the discussion was about $40 nor how detailed the discussions were when Microsoft and Yahoo officials met in late 2006 and early 2007. The talks were widely rumored at the time but not confirmed.
Microsoft CEO Steve Ballmer's Jan. 31 letter to Yahoo's board of directors acknowledges the talks but doesn't mention price. It does cite a letter from then-CEO Terry Semel stating that "now is not the right time from the perspective of our shareholders to enter into discussions regarding an acquisition transaction."
A spokeswoman for Microsoft said that the company would have no comment beyond the text of the Ballmer letter. A spokeswoman for Yahoo said the company would not comment on speculation or rumors.
MSN Money columnist Michael Brush spoke with two securities law experts: Harvey Pitt, the former chairman of the Securities and Exchange Commission who is now with Kalorama Partners, and Patrick McGurn, a lawyer with Institutional Shareholder Services, a shareholder advocacy organization.
Here's what Brush found:
The answer turns on how material, or definitive, the offer is. However, there's no established test or checklist of components that make an offer definitive and therefore material and thus requiring disclosure.
If the question resulted in litigation -- lawsuits are already being filed -- courts would apply a "facts and circumstances" test. They'd look at factors like what steps the bidding company has taken to prepare the offer:
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Is there a full acquisition team in place?
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Is the financing behind the proposal credible?
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Or was the company just putting out feelers, making an initial overture?
Likewise, an offer that included several contingencies -- and little certainty about whether the contingencies could be met -- also might not be considered definitive.
Pitt conceded that the obligation to disclose is problematic. "If companies had to disclose every time someone had a twinkle in their eye, you could run into problems. If you required early disclosure, most deals would never get done."
A more difficult question arises when two companies talk but have no intention of agreeing to a deal. What the target company does not want to do is raise the possibility that it might be for sale, thus putting itself in play and forcing a takeover by someone else, Pitt said. So, what's said in any conversation is said carefully.
"The key factor is how credible is the offer at that point in time?" McGurn said. "Is it a formal offer that they are willing to pay or an overture of interest? The closer you get to it being a firm offer, the more the board should presume they have to disclose it."
A secondary factor, Pitt said, is what's happening to the stocks of the companies involved. If there is a sudden uptick in trading volume and/or price of a potential target, he said, that's a signal that information may have been leaked. That "raises the obligation to disclose," he said.
This becomes especially important if the company senses that a leak about a possible offer is coming from inside the company.
"I always tell clients it is particularly import to watch what is going on in the marketplace," Pitt said.
