The rejection letter from Yahoo! on Monday is a typical first step in a well-tread mating ritual, much like BEA Systems' rejection of Oracle's public takeover offer in October, which was later accepted at a higher price.
Yahoo's board has set the stage for further negotiations by suggesting a price of $40 a share, according to the Wall Street Journal, capping an ultimate settlement in a range starting at Microsoft's $31-a-share bid. The value of that half-cash/half-stock offer has already fallen due to the drop in Microsoft's share price since the bid was announced Feb. 1.
Later Monday, Microsoft responded to Yahoo!'s rejection in a press release, calling it "unfortunate," and saying that "we are confident that moving forward promptly to consummate a transaction is in the best interests of all parties."
The company also held up the not-so-veiled threat of a hostile bid: "Microsoft reserves the right to pursue all necessary steps to ensure that Yahoo!'s shareholders are provided with the opportunity to realize the value inherent in our proposal."
The merger has big implications for Safeguard Scientifics, which has equity stakes in smaller Internet properties such as Bridgevine and Beyond.com. The success of these sites is tied directly to the ability of these search engines to convert queries into hits.
Kemmerer views both Microsoft and Yahoo! as potential bidders for the VC firm's startup Internet properties. "I need as many bidders as possible. Take one out, and I lose a potential acquirer," he said.
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