Bernstein's Lindsay sees imminent news in Microsoft-Yahoo situation; shareholders sue Wrigley board

By Paul A. Harris

St. Louis, May 1 - Against a backdrop of rallying stock prices, shares of Yahoo! Inc. (Nasdaq: YHOO) fell by 2.17% on Thursday, down $0.60 to close at $26.81, or 13.5% below Microsoft Corp.'s $31 per share cash and stock bid to acquire the internet search giant.

A special situations equities analyst brought to the attention of Prospect News a report in the Wall Street Journal, citing a source close to the matter, that the Microsoft board remains unsure how to proceed with the acquisition.

Jeffrey Lindsay, senior analyst with Sanford C. Bernstein & Co., LLC, said Thursday afternoon that he expects a development in the situation either Thursday night or Friday, and added that Microsoft appears to have four possible ways forward.

One, Microsoft will reassert its original bid and nominate its slate of directors, and approach the situation as a standard proxy fight.

"By Delaware law, the Yahoo shareholders meeting has to happen before July 12," said Lindsay.

"Microsoft would basically kick off the proxy fight and begin lobbying the large shareholders."

A second way forward, the analyst said, would be for Microsoft to improve its offer.

"They may be negotiating with the larger shareholders right now," he said, but added that he does not expect to see the bid top $33 per share.

"We did an accretion/dilution analysis on the deal," Lindsay added.

"The Yahoo acquisition doesn't work for Microsoft much over $35 per share. That's their absolute tops.

"They have to try and cut it between $31, which is where they are, and $35, which is probably the maximum that it makes sense for them to pay.

"They will likely come back with something in the middle."

A third possibility, the analyst said, is for Microsoft to actually lower the bid. However Lindsay thought that the least likely of the four.

The fourth possibility is that Microsoft walks away from the deal - a possibility which, the analyst said, cannot be totally discounted.

Prospect News asked Lindsay whether a possible role for Yahoo founder and CEO Jerry Yang in the merged entity could figure into the unfolding transaction.

The analyst said that with no negotiations having taken place thus far between the companies, the likeliest outcome is that the Yahoo team would not figure into the post-merger company.

Meanwhile on Thursday shares of Microsoft (Nasdaq: MSFT) gained 3.09% to close at $29.40, up $0.88%.

Shareholders sue Wrigley board

Elsewhere on Thursday a special situations equities analyst said that a shareholder suit has been filed against William Wrigley Jr. Co. in Illinois District Court, alleging a breach of fiduciary duty by entering the merger agreement with Mars Inc.

Earlier this week Mars announced a merger agreement with Wrigley in a transaction valued at approximately $23 billion.

Shareholders of Wrigley would receive $80 in cash for each share of common stock and class B common stock.

The shareholder lawsuit did not surprise the analyst who said that while Wrigley shareholders certainly want the deal to go through they also want more money.

On Thursday shares of Wrigley (NYSE: WWY) finished the day 0.20% lower, down $0.15, to close at $76.01.

Prospect News asked the analyst why, if confidence remains high that the deal will get done for $80 per share, and possibly more, depending upon the finesse of the suing shareholders, the share price is trading nearly $4 below the tender.

"Initially they said it would take six months to 12 months to close the deal," the analyst answered.

"That's a long timeframe.

"As soon as they start narrowing that down you will start to see the spread narrow."

Blockbuster release priced in

Despite the buzz surrounding the Tuesday release of its flagship video game, Grand Theft Auto IV - long lines and enthusiasts camped out in front of shops on the eve of the release - shares of Take-Two Interactive Software Inc. (Nasdaq: TTWO) fell more than half a percent on Thursday (negative 0.57%) to close at $26.09, $0.15 lower on the session.

Take-Two is the target of a hostile takeover bid by Electronic Arts Inc. - an offer that was recently decreased by Electronic Arts to $25.74 per share from $26 per share.

A special situations analyst said that while the buzz appears consistent with a blockbuster release it may ultimately fail to afford Take-Two any additional leverage in wresting a higher bid out of Electronic Arts.

"I kind of take Electronic Arts at their word when they say they factored in record sales," the analyst said.

"So perhaps it was priced into their offer."

Meanwhile Electronic Arts (Nasdaq: ERTS) shares gained 3.34% on Thursday to close at $53.19, up $1.72.

Thursday's situations unfolded against a backdrop of rallying stock prices in all three major U.S. indexes.

The Nasdaq gained 2.81%, or 67.91 points, to close at 2,480.71.

The S&P 500 was up 1.71% to close at 1,409.34, 23.75 points higher on the day.

The Dow Jones Industrial Average closed higher by 1.48%, or 189.87 points, finishing at 13,010.

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