Undeterred by the threat of hostile takeover, slumping Internet pioneer Yahoo Inc. completed an acquisition of its own Tuesday by buying online video service Maven Networks Inc. for $160 million.
The deal marks Yahoo’s latest attempt to expand its online advertising network and snap out of a two-year financial funk that has culminated in unsolicited takeover offer from Microsoft Corp.
Yahoo’s board rejected the bid Monday, prompting Microsoft to raise the possibility of taking its offer — originally valued at $44.6 billion or $31 per share — directly to shareholders.
Sunnyvale-based Yahoo thinks it’s worth more, an opinion echoed by its second largest shareholder in a letter released Tuesday.
“We think (Microsoft) will have to enhance its offer if it wants to complete a deal,” wrote Bill Miller, a respected fund manager for Legg Mason Inc., which owns more than 80 million Yahoo shares.
Like many other industry analysts, Miller predicted Yahoo ultimately will end up in Microsoft’s clutches.
“We think it will be hard for (Yahoo) to come up with alternatives that deliver more value than (Microsoft) will ultimately be willing to pay,” he wrote.
Miller also wrote that he has already met with Steve Ballmer, Microsoft’s chief executive, and spoken to Jerry Yang, Yahoo’s CEO and co-founder, to share his views.
Redmond, Wash.-based Microsoft so far has indicated it’s not budging from its original offer, calling the proposal “full and fair.” Analysts believe the tense mating dance will last at least a few more weeks.
In the meantime, Yahoo continues to work on a long-promised turnaround.
The talks to buy Cambridge, Mass.-based Maven began before Microsoft announced its bid Feb. 1, said Tim Cadogan, Yahoo’s senior vice president of marketing products.
Maven helps television and movie studios find Web sites to show their videos and manage the accompanying advertisements. The 6-year-old startup works with a wide range of media outlets, including CBS Sports, Gannett Co., News Corp., Hearst Corp. and Sony Pictures.
Online video advertising is steadily climbing as more people watch news and entertainment online. The amount spent on Internet video ads annually is expected to triple during the next three years to $4.3 billion in 2001, estimated research firm eMarketer Inc.
“We think video is going to become the third leg of the advertising stool,” said Cadogan. Ads tied to search requests is currently the Internet’s biggest moneymaker, followed by so-called display ads featuring photos, illustrations and other images.
As in search, Yahoo Inc. is trying to catch up to rival Google Inc. in Internet video.
As of December, Yahoo held a 3.4 percent share of the U.S. online video market, lagging far behind Google, whose ownership of industry leader YouTube.com gave it nearly one-third of the market, according to comScore Inc.
Yahoo plans to retain Maven’s roughly 70 employees even as it completes plans to lay off 1,000 workers in other divisions as part of a plan announced two days before Microsoft’s bid.
Employees affected by the job cuts reportedly began receiving layoff notices Tuesday. Yahoo spokeswoman Diana Wong declined to comment.
Based on a previous mid-February timeline established by management, Yahoo is expected to release additional details about the layoffs late this week or early next week.
Yahoo shares fell less than 1 percent to $29.05 Tuesday afternoon while Microsoft shares rose less than 1 percent to $28.34.