Microsoft SEC Filing Signals Proxy Fight For Yahoo

Microsoft warned investors in a document filed with the Securities and Exchange Commission that it's prepared to wrest control of Internet rival Yahoo through a proxy fight if necessary.

In the preamble to a filing related to the company's proposed $41 billion buyout of Yahoo, Microsoft noted that its "directors and executive officers and other persons may be deemed to be participants in the solicitation of proxies in respect of the proposed transaction."

The rest of the filing, dated Tuesday, provides a transcript of a trade magazine's interview with Microsoft senior VP Yusuf Mehdi on the proposed Yahoo deal.

The language in the preamble, though brief, marks the first time Microsoft has publicly acknowledged that it's willing to make a proxy fight out of its campaign to acquire Yahoo. To date, the company has declined comment on reports in the New York Times and other publications that such a campaign is in the cards.

Microsoft may have little choice but to resort to a proxy fight as Yahoo's board has flat out rejected Microsoft's offer to buy the company outright for $31 per share. The board last week in a statement said the offer "substantially undervalues" Yahoo.

To win a proxy fight, 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.

A proxy war won't be cheap, however. Various estimates put the cost of directly soliciting Yahoo shareholders, and associated legal fees, at between $20 million and $30 million.

It would, however, be less expensive than raising the buyout offer. Every dollar per share that Microsoft adds to the proposal tacks on an additional $1.5 billion to the deal's total cost.

On Monday, Microsoft chairman Bill Gates implied that the company won't budge much. Gates called Microsoft's initial bid for Yahoo "a fair offer."