Microsoft seen keeping pressure on Yahoo!; Wendy's, Triarc merger disappoints cash-seekers

By Paul A. Harris

St. Louis, April 24 - Internet searcher Yahoo! Inc. remained in the financial headlines on Thursday as the Wall Street Journal reported that Microsoft Corp. put together its slate of nominees to the Yahoo board, should Microsoft elect to go ahead with a threatened proxy fight in its $29.24 per share half-cash/half stock bid for Yahoo.

The list of nominees is reported to include Nextel Partners chief executive officer John Chapple and former Grey Global Group CEO Edward Meyer.

Meanwhile the New York Post reported that Steve Ballmer is likely to use a backdoor approach in communicating a higher bid to Yahoo, provided that Jerry Yang and the Yahoo board agree to formal discussions. Otherwise Ballmer will likely commence the proxy fight.

Clayton Moran, senior vice president with Stanford Group Co., an analyst in the media, internet and communications sector, said on Thursday that for Yahoo time and alternatives are running out.

"We think Yahoo has limited alternatives, and Microsoft is the best one," Moran asserted.

"Microsoft is clearly the highest bidder, and the one that is driving the most value for Yahoo shareholders.

"Because of that it's just a matter of time before a deal gets done."

The analyst added that should Microsoft decide that it has run out of alternatives to the threatened proxy fight it could be a drawn out process that will delay any value realization for Yahoo shareholders.

Microsoft offer unlikely to change materially

Moran also asserted that Yahoo's first-quarter results, which it reported on Tuesday, are unlikely to afford the company any additional leverage in any negotiations with Microsoft.

Yahoo reported on Tuesday that its revenue, excluding the amount paid to advertising partners, rose to $1.35 billion, beating analysts' expectations of $1.32 billion.

In a conference call Jerry Yang reiterated that the Yahoo board and management will not enter into any transaction that they believe does not recognize the full value of the company.

Notwithstanding this assertion, Moran sees the merger as being just a matter of time.

"We do think that Microsoft could lift its bid somewhat," he said.

"But we don't see them lifting their bid materially, given that Yahoo has limited alternatives."

He said that Microsoft's offer could go up as much as 10%.

"I would consider that a minor increase, to satisfy Yahoo and its board," Moran said.

"That kind of increase would not represent the kind of material change which might prompt Microsoft to go hostile."

On Thursday Yahoo (Nasdaq: YHOO) shares lost 2.78%, or $0.78, to close at $27.30.

Meanwhile Microsoft (Nasdaq: MSFT) shares closed 1.11% higher at $31.80, up $0.35.

Warby's

Elsewhere in Thursday's mergers and acquisitions situations Triarc Cos., Inc., the franchisor of the Arby's restaurant system, and Wendy's International, Inc. announced an all-stock merger deal in which Wendy's shareholders will receive 4.25 shares of Triarc class A common stock for each share of Wendy's common stock they own.

Under the agreement, Triarc's shareholders will be asked to approve a charter amendment allowing the conversion of each share of Triarc's class B common stock, series 1 into one share of its class A common stock, resulting in a post-merger company with a single class of common stock.

According to a press release, the new company expects to pursue day-part expansion, primarily focused on breakfast, global expansion for both brands, and growth through future acquisitions and new unit development.

They will consolidate support operations in Atlanta.

A stock analyst who covers the restaurant sector said the deal's multiples look consistent with precedent transactions.

However the analyst added that an all-stock deal is likely to be a disappointment to some.

"People were expecting it to have a larger cash component, given the acquisition facility that [Trian Partners chairman Nelson] Peltz has."

Shares of Wendy's (NYSE: WEN) gained 4.23% on Thursday, up $1.07 to close at $26.39.

Meanwhile Triarc class A shares (NYSE: TRY) gained 2.7%, or $0.17, to close at $6.47. Triarc's class B shares (NYSE: TRY-B) closed 1.85% higher at $6.62, up $0.12.

Thursday's situations took place against a backdrop of rallying U.S. stock markets.

All three indexes closed the day more than 0.60% higher.

The Nasdaq posted the biggest gains, 0.99%, closing at 2,428.92, up 23.71 points.

The Dow Jones Industrial Average gained 0.67%, or 85.73 points, to close at 12,848.95.

The S&P 500 ended the day 0.64%, or 8.89 points higher, at 1,388.82.

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