Yahoo! snubs Microsoft offer

Internet search engine Yahoo! today rebuffed a $44.6bn US (€30.8bn) takeover approach from software giant Microsoft.

The online group said the offer – made in a surprise move less than two weeks ago – “substantially undervalues” the business.

The rejection comes after mounting speculation at the weekend that Yahoo! Was set to snub Microsoft’s bid.

It is believed Yahoo! is holding out for at least $56bn (€38.6bn).

A merger between the two would create one of the world’s biggest technology firms and a rival to search engine Google.

However, Yahoo! is understood to be planning a raft of defensive moves to fend off Microsoft's advances.

It is reportedly looking at rekindling merger talks with AOL and is also rumoured to be mooting the idea of an advertising partnership with Google.

Microsoft has already hinted that it is prepared to make the bid hostile, saying it reserved the right “to pursue all necessary steps” to win over the firm’s shareholders if the deal is opposed.

The group could decide to take its offer straight to Yahoo! shareholders, although market experts suggested that it may yet seek to sweeten its bid.

It is thought to be prepared to up its offer to $35 US (€24.2) a share.

Microsoft made its original $31 US (€21.4) a share in a bid to challenge the dominance of internet search engine giant Google.

Its unexpected approach comes a year after Microsoft and Yahoo! held talks over a possible tie-up to challenge Google, although Yahoo! rejected the proposals at the time because it hoped to reap benefits from an overhaul of the business.

Microsoft warned on unveiling its offer that the “competitive situation has not improved” and believes a merger is the “only alternative” to challenging Google’s dominance.

The software giant hopes to offer a credible alternative to Google through the tie-up, offering greater choice to advertisers, increasing research and development spending and stripping out overhead costs.

In January Yahoo! reported a 23% fall in fourth-quarter profits. Jerry Yang, the company’s co-founder and chief executive, said the firm would “continue to face headwinds” during this year.

According to data from US research firm ComScore, Google accounted for more than 58% of internet searches in the US in December, with Yahoo! a distant second on 22.9%. Microsoft’s sites were used in almost 10% of searches.

The group said today that the bid “substantially undervalues Yahoo!, including our global brand, large worldwide audience, significant investments in advertising platforms and future growth prospects, free cash flow and earnings potential”.

It added: “The board is continually evaluating all of its strategic options in the context of the rapidly evolving industry environment.”