2008-04-06 16:00:40 - Microsoft (NASDAQ:MSFT) Chief Executive Steve Ballmer on Saturday gave Yahoo (NASDAQ:YHOO) three weeks to accept his very generous offer - or he'd launch a hostile takeover of the Silicon Valley company.

If there's no deal by April 26, Ballmer warned, Microsoft may cut its offering price of $31 a share substantially. "It has now been more than two months since we made our proposal to acquire Yahoo at a 62 percent premium to its closing price on January 31, 2008, the day prior to our announcement," Ballmer wrote in a letter

to Yahoo's board. "Our goal in making such a generous offer was to create the basis for a speedy and ultimately friendly transaction. Despite this, the pace of the last two months has been anything but speedy."

While the Yahoo board stalled, he wrote, the value of the Sunnyvale Internet company declined along with a falling stock market and weakening economy. He also noted that data from independent market research firms and other indicators suggest Yahoo's share of Internet search queries and page views has fallen.

"By any fair measure, the large premium we offered in January is even more significant today. We believe that the majority of your shareholders share this assessment," Ballmer said.

Yahoo did not respond to Ballmer's letter Saturday. Yahoo's board of directors rejected Microsoft's more-than-$40-billion bid Feb. 11, saying it "substantially undervalues Yahoo including our global brand, large worldwide audience, significant recent investments in advertising platforms and future growth prospects, free cash flow and earnings potential," as well as Yahoo's investments in Asian Internet companies. However for all Yahoo's chest beating it has failed to attract any competing interest in the market. Yahoo has tried and failed to find an alternative to Microsoft's offer that would substantially increase Yahoo's value, including potential deals with Time Warner and News Corp.

Buzz Technologies Inc (OTC:BZTG) is waiting in the wings, "Microsoft will not continue producing Yahoo's high cost content , nor will any new buyer or new management leaving a very good market for Buzz, no one can beat our cost structure" said Sean Lee Buzz CEO "Yahoo is growing less competitive, if they do not accept the Microsoft offer, there are serious doubts over their long term independent survival" he added.

Yahoo has taken the outrageous position it will not negotiate unless Microsoft raises its bid. "People thought for awhile that they were trying to get more than $31 a share," said Carl Tobias, a law professor at the University of Richmond. "I guess that bluff has been called."

In his letter, Ballmer also said Microsoft would launch a "proxy war" to elect an alternative slate of directors to the Yahoo board, which could potentially give Microsoft control of the company.

But the bigger threat came at the end of the letter, when he warned Microsoft may cut its offer if the deal is not done by the April 26 deadline.

"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.

"It is unfortunate that by choosing not to enter into substantive negotiations with us, you have failed to give due consideration to a transaction that has tremendous benefits for Yahoo's shareholders and employees," Ballmer wrote. "We think it is critically important not to let this window of opportunity pass."

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