February 27, 2008 4:43 PM PST

Yahoo says Microsoft's bid is distracting workforce

Posted by Greg Sandoval

Yahoo stated the obvious in its annual report on Wednesday by saying Microsoft's bid to buy the company is distracting executives and employees.

"The review and consideration of the Microsoft proposal...have been, and may continue to be, a significant distraction for our management and employees," Yahoo said in the company's annual report filed with the Securities and Exchange Commission. Yahoo cautioned that the deal "may adversely affect our business."

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Microsoft's unsolicited $44.6 billion offer to acquire Yahoo has spooked workers because of the uncertainty surrounding the deal, Yahoo said. This may make it tough, according to Yahoo, for the company to retain and attract "key employees and hire new talent."

The ironic thing about Yahoo's claims is that the company appeared highly unfocused to many well before Microsoft came calling. Yahoo insiders, analysts, and others close to the company told CNET News.com just prior to Yahoo going public with Microsoft's offer ,that the company was bogged down by ineffective group decision-making and a damaging aversion to taking risks.

They say Yahoo has for some time been mired in bureaucracy and an embarrassing inability to respond to more nimble (though considerably larger) Google.

Nonetheless, Yahoo has rejected Microsoft's offer and Microsoft has indicated it isn't planning to give up. That means Yahoo employees should get used to distractions, at least for the time being.

Included in the filing was the mention of seven shareholder lawsuits against Yahoo over the administration's handling of Microsoft's offer.