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4/7/2008
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Yahoo Blames Microsoft For Stalled Merger Talks

Microsoft recently said it would seek to replace Yahoo's board through a hostile proxy contest if the deal isn't accepted within three weeks.

Yahoo on Monday turned the tables on Microsoft, claiming it is Redmond that's holding up negotiation of a possible merger between the two companies.

In a letter to Microsoft CEO Steve Ballmer, Yahoo CEO Jerry Yang and chairman Roy Bostock took issue with Ballmer's complaint that meetings between the two companies have not led to meaningful discussions.

"Steve, you personally attended two of these meetings and could have advanced discussions as you saw fit," Yang and Bostock said.

The pair was responding to a letter Ballmer sent to Yahoo's board on Saturday, in which he chastised Yahoo's management for inaction on Microsoft's $31-per-share bid for the company. Ballmer said Microsoft would seek to replace Yahoo's board through a hostile proxy contest if the deal isn't accepted within three weeks.

In their response, the Yahoo executives said Ballmer needs to show some flexibility for merger talks to proceed further. "Your comment that we have refused to enter into negotiations to conclude an agreement are particularly curious given we have already rejected your initial proposal," the pair wrote.

Microsoft also has been dragging its feet on producing legal work they need to fully evaluate the proposed deal, Yang and Bostock said.

"We provided you on March 28 a list of additional information we would need to further our understanding of the regulatory issues associated with any transaction. To date, you have still not provided any of the requested information," the Yahoo executives wrote.

Yang and Bostock said they haven't budged in their belief that Microsoft's offer undervalues Yahoo. "We continue to believe that your proposal is not in the best interests of Yahoo and our stockholders," the pair wrote.

The dueling missives are the latest indication that Microsoft's bid for Yahoo could become a drawn-out affair harmful to both companies. Microsoft's stock price is down about 10% since the day before it announced its proposal to buy out Yahoo on Feb. 1.

Yahoo shares are up 45% over the same period, but have fallen 5% since the offer was first disclosed.

Yahoo has been forced to take extraordinary, and potentially costly, measures to keep employees from heading for the exits. Among other things, the company recently said that employees who are axed within two years of "a change in control" will receive between four months and two years of regular pay as severance.

As for Microsoft, a proxy fight with Yahoo could prove costly.

To win such a contest, Microsoft would have to convince Yahoo shareholders to vote for a new board of directors that would be friendly to the transaction at Yahoo's next annual meeting -- most likely in May.

Various estimates put the cost of directly soliciting Yahoo shareholders, and associated legal fees, at between $20 million and $30 million.

In their letter to Ballmer, Yang and Bostock said Yahoo is open to an offer from Microsoft "if it represents a price that fully recognizes the value of Yahoo on a standalone basis."

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