Walking Microsoftly

April 25, 2008

Steve BallmerWith Saturday’s deadline looming, Microsoft pressed its attack on Yahoo, saying the faded Web star needed to forgo “unrealistic expectations” that it is worth more than $44 billion. Microsoft said it would consider its alternatives including going hostile or withdrawing its offer if the two sides don’t make progress toward an agreement by this weekend. “Speed is of the essence for the deal to make sense,” Chief Financial Officer Chris Liddell told Reuters. “Unfortunately, the transaction has been anything but speedy and has been characterized by what would appear to be unrealistic expectations of value.” In the last few days, Chief Executive Steve Ballmer has reiterated Microsoft has no plans to raise its cash-and-stock offer, which the Yahoo board has spurned, saying it significantly undervalues the company.

How very un-buyout-firm-like. Fresh from two major financial services deals in recent weeks, private equity heavyweight TPG is actively targeting investment opportunities at banks and brokerages, people familiar with the matter said, and is happy to sit back with a non-controlling stake and let management do its thing. On Monday, senior officials of TPG, including co-founder David Bonderman, met with John Thain and Greg Fleming, the CEO and president of Merrill Lynch, to discuss investment proposals, these people said. Among the topics at the Merrill meeting was the possibility of a capital infusion into the bank, an offer Merrill rebuffed. But the meeting was one of a number TPG has held in recent months at financial institutions as it seeks to deploy some $20 billion in “dry powder,” or unused funds, sources said. TPG has more than $50 billion of assets under management.

Cell phone chip maker Micrel plans to issue a strongly worded letter later in its battle with an activist investor warning shareholders that a forced sale could damage its business. The letter, obtained by Reuters, says Micrel shareholders should vote against Obrem Capital Management’s rival slate. Obrem owns just under 15 percent of Micrel. It has urged the company to remove its current board of five directors and instead let shareholders vote on its proposed slate of six nominees at a special meeting on May 20.

Lara Croft game creator SCi Entertainment said it raised 60 million pounds ($119 million) as property tycoon Robert Tchenguiz and media group Warner Bros bought big chunks of a share placing. The new shares were priced at a 38 percent discount to Thursday’s closing middle market price, SCi said. Tchenguiz’s Thorson investment vehicle is expected to end up as the biggest shareholder with a roughly 22 percent stake, with Warner at 20 percent. Shares of SCi, which created the heroine of the Tomb Raider games, sank to a five-year-low after reporting in February it needed 50 million pounds to survive, after the cost of scrapping a series of ill-conceived computer games.

Ryanair shares have been hammered as fuel costs mount, but investors may be missing a trick, given hidden value in a growing fleet that could make it a tempting bid target for anybody who can raise the funds. Europe’s biggest low-cost carrier has seen its stock dive 60 percent in 12 months. Investors are wary of its lack of protection against record oil prices, but Ryanair has orders and options to buy dozens of Boeing planes over the next four years at prices so far below the going rate that the difference in value alone could net any buyer 2.3 billion to 2.6 billion euros ($3.6-$4.1 billion).

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As the deadline of Saturday imposed by Microsoft Corp for Yahoo Inc to enter discussions on the former’s buyout bid quickly approaches, Microsoft has been issuing ambiguous comments as to whether it still wants to acquire Yahoo, leaving many to wonder whether the deal is being abandoned. This new round of speculation was set off as a result of Microsoft’s fiscal third-quarter earnings report on Thursday that showed the company’s net income declined by 11 percent. Yet a company spokesman attempted to give a positive spin to the results: “Our third-quarter results demonstrate the benefit of our diversified business model,” said Microsoft CFO Chris Liddell. “Our broad span across geographies, product categories and customer segments is a tremendous asset and supports our outlook for double-digit revenue, operating income and earnings per share growth for this fiscal year and also for fiscal year 2009,” he added. According to a report in The Wall Street Journal, however, Mr Liddell appeared to be preparing investors for the abandonment of Microsoft’s plan to buy Yahoo. “Microsoft Chief Financial Officer Chris Liddell seemed to be preparing Wall Street for the prospect of a deal’s not happening. Mr. Liddell said ‘speed is of the essence’ in completing a deal, but the process ‘has been anything but speedy,’” The Journal reported in an article on Friday. This raises the question as to whether the company’s Board of Directors are pulling the plug on the buyout bid because of the company’s disappointing earnings.


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