March 5, 2008 11:17 AM PST

Microsoft board to address next step in bid for Yahoo

Posted by Dawn Kawamoto

Yahoo's resolve in fending off Microsoft's unsolicited buyout bid appears to be softening.

Early Monday morning, Microsoft's Chief Financial Officer Chris Liddell told attendees at Morgan Stanley's Technology Conference that Yahoo had not formally responded to its buyout bid and the software giant was keeping an eye out for other acquisitions.

That same day, Yahoo's board of directors voted to amend the company's bylaws, in a move designed to delay a hostile proxy fight with Microsoft and give it more time to explore its options in finding another suitor.

The take-away from this action is that Yahoo still wants to keep Microsoft close, and friendly.

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"Microsoft's management will choose how to respond to this in the next few days and update the board on how to proceed," said a source familiar with the talks, noting that the software giant's stance to date has been a desire to do a friendly transaction.

The source noted Yahoo still has not formally responded to Microsoft's buyout offer, as of Wednesday, and said it's unlikely to expect the software giant to have any significant developments relating to Yahoo through the coming weekend.

Despite Yahoo's decision to delay the deadline for shareholders to submit a list of opposition director candidates, Microsoft, nonetheless, has its slate ready to go when needed, noted the source.

The slate was drawn from a pool of candidates spanning from seasoned executives from brand-name companies to folks with a financial background, added the source.

And while Yahoo is taking a calculated risk in extending the deadline without being in formal talks with Microsoft, it's a "smart move" on Yahoo's part, said Stephen Jenkins, a director with Delaware law firm Ashby & Geddes, which has represented a number of clients in proxy fights.

"Although Microsoft needs to get its nominees together and will have 10-days notice to get its nominations into Yahoo, that buys Yahoo more time without the pressure of Microsoft's nominees being made public," Jenkins said. "(This) potentially signals to Microsoft that it is open to private discussions."