S&P puts Yahoo! on developing watch

Standard & Poor's said it placed its ratings on Yahoo! Inc., including the BBB- corporate credit rating, on CreditWatch with developing implications following Microsoft Inc.'s unsolicited $44.6 billion bid for the company. The $31-per-share price is a 62% premium to Yahoo!'s closing stock price on Jan. 31, and Yahoo!'s board of directors is evaluating the proposal.

The CreditWatch listing is based on concerns that Yahoo! could reject Microsoft's unsolicited bid and try to sway its shareholders through a special one-time dividend or large share repurchases funded by debt, the agency said. Depending on the magnitude, either of these actions could result in S&P lowering its ratings on the company.

Microsoft chief executive officer Steve Ballmer has indicated he won't take no for an answer after Yahoo! rebuffed takeover overtures a year ago, suggesting the possibility of a protracted tug of war between the two companies, S&P said, adding that although unrated, Microsoft is clearly a stronger credit than Yahoo!. If Yahoo! accepts Microsoft's unsolicited offer, the agency is therefore likely to raise the rating based on Microsoft's conservative balance sheet and strong discretionary cash flow.

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