Funds may swoop as Microsoft drops Yahoo bid

Date: Tuesday, May 6, 2008
Author: Hedgeweek.com

Over the weekend, software giant Microsoft dropped its three-month-old bid to buy internet firm Yahoo! because the two sides cannot agree on an acceptable price. But Microsoft's withdrawal is now prompting Yahoo!'s shareholders - the majority of them large US fund managers as well as hedge funds and arbitrageurs who have bought significant stakes since Microsoft first tabled its original USD31-a-share offer in February - to rattle the Yahoo! board.

Hedge funds may now mount a proxy fight and seek several seats or even the full board. One shareholder, a hedge fund manager, was quoted as saying: 'Yahoo's current board definitely needs new blood.'

Shares in Yahoo! fell 15 per cent on the Nasdaq stock market on Monday following the withdrawal of Microsoft's bid. This prompted speculation that existing hedge fund shareholders and new ones may buy into the internet company at these attractive prices.

Whether the hedge funds will be successful or not, the outcome will surely be more clearer at the next annual shareholders meeting, for which Yahoo! has yet to set a date.

If the hedge funds do get their way in replacing board members, the new directors could revoke Yahoo!'s poison pill clause, which prevents an investor from buying more than 15 percent of the company on the open market. This could leave Yahoo! vulnerable to a hostile takeover, and perhaps reignite the interest from Microsoft.