Yahoo 1Q profit rises, but that might not thwart Microsoft

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Microsoft has threatened to oust Yahoo's board if the 10 directors don't accept the current offer Saturday, but that risky maneuver known as a proxy contest could extend the current impasse into July.

The cash-and-stock bid, valued at $44.6 billion when it was first made nearly three months ago, is now worth about $43 billion, or $29.88 per share.

Without specifying a precise price, Yahoo has maintained it's worth more to Microsoft even though its stock price had fallen below $20 before the bid.

Steve Ballmer, Microsoft's chief executive officer, reiterated the software maker has no plans to sweeten its offer. "We think we can accelerate our strategy by buying Yahoo and will pay what makes sense for our shareholders," Ballmer said before Yahoo released its results.

Yahoo co-founder and CEO Jerry Yang emphasized the company won't consider the sale unless the bid is raised. "Our ability to execute on multiple fronts is clearly improving," he told analysts during a Tuesday conference call.

Investors didn't seem to be impressed as Yahoo shares shed 19 cents in extended trading after dipping a penny to finish the regular session at $28.54.

Yahoo expects its revenue to increase more dramatically in 2009 and 2010 as the benefits from its expanded Internet advertising network start to kick in. "We feel we are on the verge of fundamentally changing the game," Sue Decker, Yahoo's president, said in Tuesday's conference call.

The confident tone of Yahoo's management contrasted with a more glum tenor at the end of January when Yang warned economic "headwinds" might complicate the company's turnaround efforts. The bleak outlook came just two days before Microsoft made its unsolicited takeover offer.

Given the Microsoft bid, Global Crown Capital analyst Martin Pyykkonen said the company's optimism should be taken with a grain of salt. "You almost have to discount anything positive management has to say because they are just trying to get the (sale) price up," he said.

Microsoft's bid conceivably could rise above its original value without management upping the ante. It might happen if Microsoft's own quarterly earnings report due out Thursday pushes its shares above $32.60. Microsoft's stock price finished Tuesday at $30.25, down 17 cents.

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