Microsoft Corp. is considering cutting its $44.6 billion offer for Yahoo! Inc. as a worsening U.S. economy threatens Yahoo's business, two people with knowledge of the matter said.
The companies haven't made progress on negotiations since Yahoo rejected the bid in February, and there are signs that Yahoo's business has declined, one of the people said. They asked not be named because the talks are private.
The prospect of a lower bid increases the pressure on Yahoo Chief Executive Officer Jerry Yang, who has sought alternatives to the buyout. Since Microsoft made the offer, U.S. consumer spending has slowed. Federal Reserve Chairman Ben Bernanke said this week that the U.S. may be in a recession, spurred by the collapse of the subprime mortgage market.
``It's only a question of time before Microsoft takes them over,'' said Jeffrey Lindsay, an analyst at Sanford C. Bernstein & Co. in New York. He expects Yahoo stock to perform in line with peers. ``It's just unfortunate that Yahoo has dragged it out so long, because they are probably going to miss a few dollars that they could have obtained if they had negotiated immediately.''
Yahoo spokeswoman Tracy Schmaler and a representative for Redmond, Washington-based Microsoft declined to comment.
Microsoft, the world's largest software maker, offered $31 a share for Yahoo on Jan. 31. Sunnyvale, California-based Yahoo rejected the bid Feb. 11. The offer is 62 percent higher than Yahoo's closing price the day before the bid was disclosed.
Shares Drop
Yahoo fell 87 cents, or 3.1 percent, to $27.49 in extended trading yesterday after closing at $28.36 on the Nasdaq Stock Market. Microsoft climbed 44 cents to $29.60 after closing at $29.16. That values the half-cash, half-stock bid at less than $40 billion.
Microsoft wants to combine its search engine with Yahoo's, creating a bigger competitor to industry leader Google Inc. Yahoo's share of the U.S. search market fell to 21.6 percent in February from 22.2 percent the previous month, while Microsoft dropped to 9.6 percent from 9.8 percent, according to Reston, Virginia-based ComScore Inc. Google rose to 59.2 percent from 58.5 percent.
Before the offer, Yahoo had reported eight straight quarters of falling profit. Yang, who co-founded the company, replaced Terry Semel as CEO last year to reignite growth.
Sales Forecast
On March 18, Yahoo said it was worth more than Microsoft's offer, based on its No. 2 ranking in Internet search, its operations in Asia and the potential cost savings of the deal. The company said then that sales will climb at least 19 percent in each of the next two years, more than analysts anticipated.
The same day, Sanford C. Bernstein's Lindsay called Yahoo's growth predictions in the next two years ``too bullish'' given the U.S. slowdown.
Spending growth by American consumers in February slowed to 0.1 percent. U.S. companies have recorded costs, writedowns and other investment losses of $37.3 billion since the start of 2007 because of the collapse of the U.S. subprime mortgage market, according to Bloomberg data.
The Wall Street Journal reported yesterday that the companies failed to bridge the gulf between them after meetings this week. In rebuffing Microsoft, Yahoo said it was exploring all possible strategic options.
Yahoo, which hasn't announced an alternative to the Microsoft takeover, has held talks with Time Warner Inc. and News Corp. about partnerships, people with knowledge of those discussions said in February.
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