Microsoft Rebuff Puts Yahoo CEO In Hot Seat

SAN FRANCISCO -- Yahoo chief executive Jerry Yang is convinced that the company he started in a Silicon Valley trailer 14 years ago is worth more than the $47.5 billion that Microsoft had offered for the Internet pioneer.

Now he may only have a few months to convince Wall Street that his rebuff of Microsoft's takeover bid was a smart move -- and if he can't, analysts won't be surprised if Yang is either replaced as CEO or forced to consider accepting a lower offer if Microsoft comes knocking at his door again.

"This squarely puts the pressure on Jerry Yang to deliver results and shareholder value," said Scott Kessler, equity analyst with Standard & Poor's. "You are going to see a lot of shareholders just throwing in the towel because they are going to realize it's going to take a while for the stock to get back to where it was Friday."

The backlash began in Frankfurt on Monday, with Yahoo's stock shedding 20 percent in early trading.

Yahoo shares finished last week at $28.67, slightly less than the $29.40 per share that Microsoft was offering before chief executive Steve Ballmer agreed to raise the offer to $33 per share in a last-ditch effort to get a deal done.

Disillusioned shareholders are bound to question whether the rejection of Microsoft's sweetened offer was driven more by emotion and ego than sound business sense.

"Clearly there's frustration," said Darren Chervitz, co-manager of the Jacob Internet Fund, which owns Yahoo stock. "I am not even sure if Yahoo cares about its shareholders because they didn't show much regard for shareholders' best interests in this process."

Despite such negative sentiment, Yahoo shares are unlikely to immediately fall back to their $19.18 pre-bid price, partly because some investors may still be holding out hope that the software maker will renew its takeover attempt if Yahoo continues to struggle.

Accompanied by fellow Yahoo co-founder David Filo, Yang flew to Seattle on Saturday to inform Ballmer that the company wouldn't sell for less than $37 per share -- a price that Yahoo's stock hasn't reached since January 2006.

Analysts and investors were left to wonder why the two sides couldn't compromise at $35 per share.

"They really didn't seem that far apart," Chervitz said. "There is probably blame to go around on both sides, but I think most of it is in Yang's hands."

To win the faith of shareholders, Yang will have to execute a turnaround plan that he began drawing up nearly a year ago after he replaced Terry Semel as CEO amid shareholder angst about the company's financial malaise.

Yahoo also might attempt to placate shareholders by buying back stock.

Kessler believes Yang should use some of his estimated $1.9 billion fortune to personally buy more Yahoo stock even though he already owns 54.1 million shares, or 3.9 percent of the company.

"Jerry Yang really needs to put his money where his mouth is," Kessler said. "If he really thinks Yahoo is worth $37 [per share], then he needs to step up and buy some shares when they are in the low $20."