Yahoo! Inc, the Internet company that has failed to crack Google Inc's dominance of Web search, plans to reject a $44.6 billion takeover bid from Microsoft Corp, a source said.

The board spent a week reviewing the $31-per-share unsolicited offer before deciding it was too low, and directors are likely to reject it today, said the source, who declined to be identified because the discussions aren't public. Yahoo wants at least $40, the Wall Street Journal reported on Saturday.

The decision steps up pressure on co-founder Jerry Yang to present investors with a strategy to revive a stock that lost half its value in the two years before the offer. He may look to outsource its search efforts to Google or find another buyer, though analysts said it is unlikely that any other options will emerge and Microsoft may make a higher offer to win.

"A lot of this is gamesmanship on the part of Yahoo," said Scott Kessler, an equity analyst at Standard & Poor's in New York who recommends holding Yahoo and buying Microsoft. "Microsoft is well aware that Yahoo doesn't have any other options. What this is about is how much Microsoft wants Yahoo and how much time they're willing to wait to get this deal done."

Microsoft, the biggest software maker, could pay $40 for No 2 Internet search company Yahoo, Kessler said. It is more likely the companies reach a deal for less, he said. UBS AG's Heather Bellini, the top-ranked software analyst by Institutional Investor, said last week Microsoft may have to bid $34 to $37.

Yahoo spokeswoman Diana Wong said on Saturday the company doesn't comment on rumors or speculation. Microsoft spokesmen Frank Shaw and Bill Cox didn't return calls on Saturday.

Yahoo, based in Sunnyvale, California, has posted eight straight quarters of profit declines and spent years trying and failing to catch up with Google in Web queries and the lucrative market for ads linked to search results.

Together, Microsoft and Yahoo would control more than a quarter of the market for animated ads and colorful display banners at the top of Web pages. Google hasn't made much progress there, giving the combined company a way to challenge Google and start going after emerging markets such as mobile-phone ads.

Still, Yang, 39, has resisted letting go of the company he co-founded in 1995 as a graduate student at Stanford University. He replaced Terry Semel as chief executive officer in June and intended to craft a strategy to revitalize Yahoo.

Yahoo is betting Microsoft won't take hostile measures to win the bid, the Journal said, even though the software maker has indicated that's a possibility. A source said last week that Redmond, Washington-based Microsoft may seek to oust Yahoo directors should they reject its offer.

"Microsoft reserves the right to pursue all necessary steps to ensure that Yahoo!'s shareholders are provided with the opportunity to realize the value inherent in our proposal," Microsoft CEO Steve Ballmer said in a letter to Yahoo's board that was made public when the offer was announced.

Agencies

(China Daily 02/11/2008 page4)