Success of Microsoft offer may hinge on Yahoo earnings

A Times Square ticker above a Yahoo billboard flashes a Microsoft headline. (Mark Lennihan/Associated Press/file 2007)

SAN FRANCISCO - After two years of crumbling profits, Yahoo Inc. can't afford another letdown today when the Internet icon reports its first-quarter earnings.

Although they only cover a three-month period, the results could determine the Sunnyvale, Calif.-based company's fate as it grapples with an unsolicited takeover offer from Microsoft Corp.

If Yahoo bounces back to exceed analysts' modest expectations, it could be a springboard to a higher bid from Microsoft or provide more credence to management's argument that the company will be better off remaining independent.

But a disappointing quarter would intensify pressure on Yahoo to accept Microsoft's cash-and stock offer, which was worth about $43 billion, or $29.99 per share, as of yesterday.

A lackluster performance might even cause Microsoft to lower its bid, a move that almost certainly would provoke a wave of lawsuits from shareholders who thought Yahoo should have accepted the offer when it was first made nearly three months ago.

Microsoft so far has insisted its initial bid is fair and has threatened to initiate an attempt to oust Yahoo's board if the 10 directors don't accept the offer by Saturday. This option, known as a proxy contest, might drag the saga into mid-July.

A solid first quarter would make Microsoft's threat less imposing because more Yahoo shareholders might side with the board's thesis that the company is rebounding and will likely be worth a lot more soon.