Yahoo tries to prove Microsoft bid cheap

Yahoo has dusted off a three-month-old financial plan to reinforce its contention that the company is worth much more than Microsoft has offered to pay for it.


Yahoo has dusted off a three-month-old financial plan to reinforce its contention that the company is worth much more than Microsoft has offered to pay for it.

The plan predicts that Yahoo will double its operating cash flow over the next three years from US$1.9 billion (£940 million) to $3.7 billion (£1.84 billion) and was presented to Yahoo's board of directors in December.

It also forecasts that, subtracting the commission that Yahoo pays to sites in its advertising network, Yahoo will generate $8.8 billion (£4.4 billion) in revenue in 2010.

The plan was drafted before Microsoft announced its U$US44 billion (£22 billion bid) on 1 February, and therefore supports the decision by Yahoo's board to reject that acquisition offer for undervaluing the company, Yahoo said.

In addition to trotting out the plan, Yahoo has also reaffirmed its outlook for first-quarter 2008 revenue to be in the range of $1.68 billion (£840 million) and $1.84 billion (£920 million) and between $7.2 billion (£3.6 billion) and $8 billion (£4 billion) for the full fiscal 2008 year.

The plan's forecast in general is extremely aggressive and optimistic, a best-case scenario, said financial analyst Clayton Moran from Stanford Group. "The stars have to align perfectly for them to hit those numbers," he believed, adding that his 2010 revenue forecast was $7.5 billion (£3.7 billion), or $1.3 billion (£550 million) less than Yahoo's expectation.

Moran sees Yahoo's announcement as its last public posturing to try to prod Microsoft to increase its bid before the two companies inevitably sit down to negotiate in earnest.

Yahoo has submitted all the latest details to the US Securities and Exchange Commission. A Yahoo spokeswoman wouldn't say why the company didn't disclose this plan at the end of January when announced its 2007 fourth-quarter results. These were generally considered disappointing as Yahoo missed revenue expectations, saw its net income fall and announced the lay-off of about 1,000 employees.

The day after that report, Yahoo's shares hit a 52-week low at $18.58, before closing at $19.05. After Microsoft announced its bid on the morning of 1 February, Yahoo's shares jumped and closed that day at $28.38.

This week, Yahoo said that its bullish three-year plan is based on a forecast of $1.9 billion in added revenue -minus the ad partner commissions - over the next three years from display and video advertising, and $1.4 billion in added search revenue.

Microsoft didn't immediately reply to a request for comment.

Yahoo has been reportedly trying to strike up a deal that will allow it to reject Microsoft's offer without making itself liable to lawsuits claiming that by rejecting Microsoft, Yahoo's board didn't look out for investors' best interests. Yahoo has reportedly held talks with Google, AOL, News Corp, Disney and others, but has been unsuccessful, so far.

Microsoft has indicated it's willing to pursue any options to acquire Yahoo, leaving the door open to a hostile takeover through a proxy fight. Earlier this month, Yahoo lifted the deadline for nominating directors to its board, to try to fight that.

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