YAHOO HAS extended a deadline to nominate board directors, buying it time to pursue alternatives to Microsoft's $41.7 billion (€27 billion) offer, while also giving Yahoo room to negotiate a friendly deal with Microsoft.
The original March 14th deadline could have catapulted Microsoft and Yahoo into a formal proxy contest next week. Instead, Yahoo said this week the deadline would fall 10 days after it announces the date for its annual shareholder meeting, as yet unscheduled.
Yahoo has explored tie-ups with several other internet and media companies that would allow it to retain more independence. Delaying board nominations reduces the pressure on Microsoft to turn hostile in its takeover strategy, in which it could nominate an alternative slate of Yahoo directors.
Talks about a deal with Time Warner Inc's AOL unit have accelerated, a person briefed on the discussions said. News Corp and Yahoo are still discussing possible options, a source familiar with the talks said.
A Yahoo spokeswoman declined to comment on the board actions beyond its previous statement that the company and its directors are continuing to consider all strategic options.
Canaccord Adams analyst Colin Gillis said the move was a delaying tactic by Yahoo as chief executive Jerry Yang looks for an alternative to Microsoft. "It's a sign he doesn't really have any viable alternatives. He's trying to buy more time to dig up other solutions," said Mr Gillis.
He said it would be best for both companies if they could work out a deal. "Microsoft has time working against it," he said. "They don't want to spend six months doing the dance with the [ Yahoo] board and 12 months waiting for a deal to close."
After more than a year of intermittent talks, Yahoo rebuffed an offer that Microsoft made public on February 1st valuing the company at $31 per share in cash and stock. Based on current share prices, the deal would value Yahoo at $27 per share.
Yahoo shares rose 2 per cent to $28.62 in early trading on the Nasdaq yesterday, indicating investors still expect Microsoft to sweeten its offer. Microsoft gained 2.6 per cent to $28.31.
"It's an indication that probably Yahoo is less receptive to Microsoft than was initially believed," said analyst Jeffrey Lindsay of Sanford C Bernstein, referring to the extension.
Mr Yang told Yahoo employees in a letter that the extension would still allow Microsoft to nominate directors to its board, but the main aim was to create some breathing room.
"In light of the current circumstances, this change removes an imminent deadline," Mr Yang said.
