Microsoft deal may be a duty for Yahoo board

By Eric Auchard - Analysis

SAN FRANCISCO (Reuters) - Yahoo Inc's (YHOO.O) board seems to be looking for any way possible to escape takeover by Microsoft Corp (MSFT.O), but in the end directors' duty may be simply to take what the software company offers.

The pioneering Web company may be known for its fun-loving culture where employees refer to each other as "yahoos", dress in loud purple-and-yellow T-shirts and harbor a deep Silicon Valley-bred distrust of rival Microsoft's corporate culture.

But Yahoo's 10-member board is far from being some band of Microsoft-hating ideologues that would block a deal with the world's largest software company at any price.

Most of the board directors at Sunnyvale, California-based Yahoo are drawn from the mainstream of American corporate life, including executives and entrepreneurs from fields such as advertising, airlines, supermarkets and radio.

And in a world of heightened focus on corporate boards, directors are under clear pressure to seek the best deal for shareholders, suggesting their fiduciary responsibility will prevail over any bet-the-farm strategy to remain independent.

"You can't say 'No' to Microsoft's offer based on some intangible vision," said Clayton Moran, an analyst with Stanford Group in Houston.

Microsoft's original cash-and-stock offer of $44.6 billion, or $31 per share, was a more than 60 percent premium to Yahoo's stock price. The offer value has since shrunk to about $42 billion -- still a substantial premium.

Wall Street has grown convinced that Microsoft's price is an insurmountable hurdle to would-be rivals and that the search for alternatives by Yahoo's board is basically designed to exact a higher offer from the Redmond, Washington-based giant.

"Doing some alternative deal is almost sure to be of less value to shareholders," Moran said. "You would see all sorts of lawsuits -- and they would be lawsuits with merit."

A spokeswoman declined to comment on the board's activities beyond a statement on Monday rejecting Microsoft's bid as too low: "Yahoo's board is carefully and thoroughly evaluating all of the company's strategic alternatives and will pursue the best course of action to maximize long-term value," it said.

Despite discussions, according to sources, of tie-ups with other companies from Google Inc (GOOG.O) to News Corp NWSa.N, Yahoo's directors are not tech radicals who will attempt to go it alone at any cost.

"One way Yahoo has grown up is that they have created a pretty good corporate board," said a local recruiter who has performed a variety of executive search assignments for Yahoo and is familiar with the dynamics of the directors.

"The average age is 55, which is typical for many corporate boards, but old for Silicon Valley," the recruiter said. "There is not a lot of next-generation thinking there."

LOTS OF CONNECTIONS

Even directors drawn from the tech world like venture capitalist Eric Hippeau, one of the first institutional investors in Yahoo, and Robert Kotick, head of video game company Activision Inc (ATVI.O), have ties that suggest they won't oppose a Microsoft deal.