Yahoo says Microsoft takeover bid is a distraction

Concerns raised over retaining employees, business partnerships, stock price

Yahoo has told US federal regulators that Microsoft's unsolicited takeover bid, now worth $US41.6 billion, is becoming a "distraction" to the company.

Microsoft's proposal is creating "uncertainty" that might negatively affect its business, Yahoo said in its annual report filed Wednesday with the US Securities and Exchange Commission.

In the report, Yahoo explained that its board of directors unanimously decided that Microsoft's bid was not in the best interests of the company and its stockholders. In addition, Yahoo said the board is continuing to evaluate all its options.

"The review and consideration of the Microsoft proposal (and any alternate proposals that may be made by other parties) have been, and may continue to be, a significant distraction for our management and employees and have required, and may continue to require, the expenditure of significant time and resources by us," Yahoo said in the report.

Yahoo could not be reached for comment.

Yahoo said Microsoft's takeover bid has also created uncertainty for its employees that could affect the company's ability to retain key employees and hire new ones. Additionally, Yahoo said Microsoft's proposal could also cause its advertisers and other business partners to terminate their association with the company or not enter into new agreements.

Yahoo said the company and its board have been named in seven shareholder lawsuits over its decision not to accept Microsoft's offer. These lawsuits could become time consuming and expensive, the company said. Four of the lawsuits were filed in state court in California and three were filed in Delaware Chancery Court.

"These consequences, alone or in combination, may harm our business," Yahoo said.

The company's stock price, which has been "volatile historically," may continue to be volatile regardless of the company's operating performance, it said.

"We further believe that, as a result of Microsoft's unsolicited acquisition proposal, and speculation concerning a potential acquisition, the future trading price of our common stock is likely to be volatile and could be subject to wide price fluctuations," according to the report. "There can be no assurance whether a transaction will occur or at what price. If a transaction does not occur, or the market perceives a transaction as unlikely to happen, our stock price may decline." Yahoo also said anti-takeover provisions could make it more difficult for it to be acquired by a third-party.

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