The Wall Street Journal (4/7, Delaney, Guth, Karnitschnig, B1, 2.06M) reports, “Microsoft Corp. is turning the screws to try to force Yahoo Inc. to agree to a takeover, but Yahoo remains focused on finding an alternative.” The Journal continues, “Microsoft Chief Executive Steve Ballmer in a letter sent to Yahoo directors Saturday threatened a hostile takeover of the company if they don’t agree to a merger within the next three weeks. Yahoo planned to issue a rebuttal to Mr. Ballmer’s letter early on Monday in which it is expected to reject his suggestion that Yahoo’s business is deteriorating, according to people familiar with the matter. The letter is also expected to say that the board isn’t opposed to doing a deal with Microsoft per se but thinks the software company should pay more.” Some in Yahoo’s camp “view Mr. Ballmer’s latest move as a negotiating strategy, and they believe there is still time for Yahoo to pursue alternatives to an acquisition by the software giant, say people familiar with the matter. One of the people says some members of Yahoo’s management would prefer not to sell to Microsoft and are still looking for another deal that would allow Yahoo to avoid that. The company’s directors were scheduled to discuss the matter Sunday, but it wasn’t clear whether they came to any new conclusions.”

The New York Times (4/6, Helft, 1.18M) reported, “Microsoft warned the board of Yahoo on Saturday that if a merger agreement was not completed in the next three weeks, Microsoft would make its offer directly to Yahoo shareholders, probably at a lower price.” Mr. Ballmer “also noted that in the two months since the company made its offer, the overall stock market has deteriorated and Yahoo’s business has appeared to weaken.” He “acknowledged that Yahoo has been exploring alternatives to Microsoft’s offer,” such as AOL, Google, and News Corp, but said that Microsoft’s offer “was the ‘only alternative put forward that offers your shareholders full and fair value for their shares, gives every shareholder a vote on the future of the company, and enhances choice for content creators, advertisers and consumers.’”

The Los Angeles Times (4/6, Menn, 881K) reported, “Microsoft vowed to nominate a slate of Yahoo directors who support a takeover if the deadline isn’t met.” The Times continued, “Although managers from the two companies have met twice since Microsoft announced its offer in early February, Ballmer complained in his letter that the Yahoo side hadn’t been authorized to negotiate.” Microsoft “could launch a tender offer to buy shares directly from investors, but Yahoo has a ‘poison pill’ takeover defense that empowers the board to make such a campaign prohibitively expensive. For that reason, executives involved in the fight have pointed to a proxy battle to elect directors as the most likely escalation if Yahoo doesn’t accept Microsoft’s bid or secure a comparable offer from another party.”

The Financial Times (4/7, Waters) reports, “Mr Ballmer promised an all-out hostile takeover battle before the end of the month and hinted that Microsoft would cut the value of its offer if negotiations do not start soon. ‘If we are forced to take an offer directly to your shareholders, that action will have an undesirable impact on the value of your company from our perspective, which will be reflected in the terms of our proposal,’ he wrote.” A person close to Microsoft “refused to confirm this meant it would cut the value of its original offer but called Mr Ballmer’s letter ’self-explanatory’.”

The AP (4/6, Mintz) reported, “In the letter, Ballmer said Yahoo’s search share and page views, two measures of the strength of the Web portal company’s business, appear to have fallen since the offer was made at the end of January.” Yahoo’s board “formally rejected Microsoft Corp.’s bid in February, saying it undervalues the company. Since then, the Silicon Valley company has explored alliances with Google Inc., News Corp.’s MySpace.com and Time Warner Inc.’s AOL, but no alternative to Microsoft’s offer has surfaced.” Ballmer “acknowledged the alternative negotiations and questioned why, in the absence of another offer, Yahoo was still dragging its heels.”

Bloomberg News (4/7, Kercheval) reports, “Yahoo! Inc., the Internet company that snubbed a $44.6 billion takeover bid from Microsoft Corp., fell in Europe after the software maker threatened to cut its bid if directors fail to give in soon.” The ultimatum “may send Yahoo Chief Executive Officer Jerry Yang scrambling to find an appealing alternative for investors to avoid succumbing to Microsoft, whose bid was a 62 percent premium to Yahoo’s stock price at the time. The deadline shows Microsoft is in a hurry to take on Google Inc., which dominates in Internet search, said analysts including Canaccord Adams’s Colin Gillis. ‘Microsoft doesn’t want to spend a year negotiating, playing cat and mouse with the Yahoo board and another year to close this transaction to get all the regulatory approvals,’ said New York-based Gillis, who advises investors to buy Yahoo stock. ‘The Yahoo board should come to the table a little more forthrightly.’” The piece notes, “Google’s purchase of DoubleClick Inc., whose software helps create and measure the effectiveness of Internet ads, also may have forced Microsoft to accelerate its plans since the deal gave its rival a bigger share of the display ad market, Gillis said. Microsoft and Yahoo both trail the Mountain View, California- based company in Internet advertising sales.”

Rafat Ali wrote at paidContent.org (4/5), “Microsoft (NSDQ: MSFT) and Yahoo (NSDQ: YHOO) continue to play the cat-and-mouse game out in the open, even on the weekend.” This “comes after meetings late this week between the two didn’t yield anything, and then a press war ensued.”

Commentary . Dawn Kawamoto wrote on the NewsBlog at CNET (4/5), “Ballmer’s letter is no slam dunk in driving Yahoo to formal talks. Yahoo, which already rejected Microsoft’s initial offer as too low and one that undervalues the company, is leery of entering fo
rmal talks without assurances Microsoft’s bid will be higher.” Yahoo, meanwhile, “is cognizant that Microsoft wants to get the deal done and past federal antitrust regulators, otherwise called the Department of Justice (DOJ), while President Bush is still in office, the source said.” Kawamoto continued, “Yahoo should brace itself for an onslaught of investor wrath come Monday. One large institutional investor is planning to call Yahoo’s independent directors and management on Monday. ‘I’m not happy with how Yahoo has handled it. I think they’ve bungled it while Microsoft has played it pretty well,’ the investor said. ‘I like that (Microsoft) has put a clock on this. I previously told Yahoo’s independent directors that if they didn’t move forward with this, I might support a new board.’ And while this investor had a brief thought of banning together a group of major Yahoo investors to make a public statement in support of Microsoft’s bid, the institutional investor noted that there would be a number of filing hoops to go through with the Securities and Exchange Commission. He noted a more likely scenario will be for institutional investors to make individual statements. … The investor added: ‘Microsoft has to do this deal. The paradigm is shifting away from their core business to the Internet. They’ve already spent billions of dollars but haven’t gotten it right. This is such a logical deal for them to do.’”

Harrison Hoffman wrote on the “Web Services Report” blog at CNET (4/5), “This certainly is sending a strong message to Yahoo that almost nothing can be done to derail Microsoft’s acquisition of the company.” He commented, “Since everything has been laid out and is now on the table, we are in for a very interesting three weeks. A hostile takeover of Yahoo would be really ugly and you can bet that Microsoft does not want to take that route, but it appears that they will if they have to.”

Michael Arrington wrote at TechCrunch (4/5), “Enough with subtle messages delivered through the press: Microsoft goes on the record with their threat to bail on Yahoo.” He continued, “This is really just a sign by Microsoft that they really, really still want this deal. The fact is they still haven’t announced their proposed Yahoo board slate, are still radio silent with those board members, and, most notably, haven’t pulled their offer.” Arrington commented, “This is saber rattling, and a signal that they aren’t ready to increase their offer yet. Nothing more. I stand by my prediction of a negotiated deal in the next twelve days, before Yahoo announces their Q1 earnings. Yahoo has no real alternatives, and Microsoft clearly still wants this deal.”

Blogger Says Microsoft Should Pursue Salesforce.com. Charles Cooper wrote on the “Coop’s Corner” blog at CNET (4/5), “Give Steve Ballmer credit for trying to bail Jerry Yang out of an impossible position. But he’d do better teaming up with Marc Benioff and Salesforce.com.” He continued, “If you’re a Microsoft shareholder, the good news is that Saturday’s love letter to Yahoo’s board finally starts the clock ticking. Yahoo’s got three weeks to come up with a final yes or no answer–and no, Microsoft says, this is its best and final offer. Hopefully, Yahoo’s incredibly deluded board will continue to fancy its prospects and tell Microsoft’s negotiators to take a hike. At that point, Microsoft can do much, much better for itself by taking a run at Salesforce.com.” The Salesforce.com scenario’s “a lot cleaner. Benioff’s company is developing a next-generation platform, similar in some ways to what Microsoft did with Windows except in the cloud. The similarity is in bringing thousands or millions of developers into the tent to build applications that require a subscription or license to the platform. It prints money, and in the case of Salesforce.com takes a lot of the 20th century drudgery out of the development process. Salesforce.com is based on Java and Oracle, but customers don’t care whether its .NET or Java as long as it works.” Cooper concluded, “In addition, Microsoft would still have money left over to invest in beefing up its search business. Microsoft’s Google obsession shouldn’t obscure the fact that there’s huge potential revenue within grasp if management can turn its software services into a success. If Jerry Yang & Co. want to screw this one up, Microsoft should avoid future headaches and simply wish them well.”