Yahoo Board to Spurn $44B Microsoft Bid

Yahoo Inc.'s board will reject Microsoft Corp.'s $44.6 billion takeover bid after concluding the unsolicited offer undervalues the slumping Internet pioneer, a person familiar with the situation said Saturday.

The decision could provoke a showdown between two of the world's most prominent technology companies with Internet search leader Google Inc. looming in the background. Leery of Microsoft expanding its turf on the Internet, Google already has offered to help Yahoo avert a takeover and urged antitrust regulators to take a hard look at the proposed deal.

If the world's largest software maker wants Yahoo badly enough, Microsoft could try to override Yahoo's board by taking its offer -- originally valued at $31 per share -- directly to the shareholders. Pursuing that risky route probably will require Microsoft to attempt to oust Yahoo's current 10-member board.

Alternatively, Microsoft could sweeten its bid. Many analysts believe Microsoft is prepared to offer as much as $35 per share for Yahoo, which still boasts one of the Internet's largest audiences and most powerful advertising vehicles despite a prolonged slump that has hammered its stock.

Yahoo's board reached the decision after exploring a wide variety of alternatives during the past week, according to the person who spoke to The Associated Press. The person didn't want to be identified because the reasons for Yahoo's rebuff won't be officially spelled out until Monday morning.

Microsoft and Yahoo declined to comment Saturday on the decision, first reported by The Wall Street Journal on its Web site.

Yahoo's board concluded Microsoft's offer is inadequate even though the company couldn't find any other potential bidders willing to offer a higher price.

Without other suitors on the horizon, Yahoo has had little choice but to turn a cold shoulder toward Microsoft if the board hopes to fulfill its responsibility to fetch the highest price possible for the company, said technology investment banker Ken Marlin.

"You would expect Yahoo's board to reject Microsoft at first," Marlin said. "If they didn't, they would be accused of malfeasance."

But by spurning Microsoft, Yahoo risks further alienating shareholders already upset about management missteps that have led to five consecutive quarters of declining profits.

The downturn caused Yahoo's stock price to plummet by more than 40 percent, erasing about $20 billion in shareholder wealth, in the three months leading up to Microsoft's bid.

Seizing on an opportunity to expand its clout on the Internet, Microsoft dangled a takeover offer that was 62 percent above Yahoo's stock price of just $19.18 when the bid was announced Feb. 1. Yahoo shares ended the past week at $29.20.

Led by company co-founder and board member Jerry Yang, Yahoo now will be under intense pressure to lay out a strategy that will prevent its stock price from collapsing again. What's more, Yang and the rest of the management team must convince Wall Street that they can boost Yahoo's market value beyond Microsoft's offer.

Yahoo's shares traded at $31 as recently as November, but have eroded steadily amid concerns about the slowing economy and frustration with the slow pace of a turnaround that Yang promised last June when he replaced former movie studio mogul Terry Semel as Yahoo's chief executive officer.

This isn't the first time that Yahoo has spurned Microsoft. The Redmond, Wash.-based company offered $40 per share to buy Yahoo a year ago only to be shooed away by Semel, according to a person familiar with the matter. The person didn't want to be identified because that bid was never made public.

Yahoo now may want that Microsoft to raise its price to at least $40 per share again. That would force Microsoft to raise its current offer by about $12 billion -- a high price that might alarm its own shareholders.

Microsoft's stock price already has slid 12 percent since the company announced its Yahoo bid, reflecting concerns about the deal bogging down amid potential management distractions, sagging employee morale and other headaches that frequently arise when two big companies are combined.

Although it isn't involved directly in the deal, Google is the main reason Yahoo is being pursued by Microsoft.

Yahoo has struggled largely because it hasn't been able to target online ads as effectively as Google.

Microsoft believes Yahoo's brand, engineers, audience and services will provide the company with valuable weapons in its so far unsuccessful attempt to narrow Google's huge lead in the lucrative Internet search and advertising markets.

As it examined ways to thwart Microsoft, Yahoo considered an advertising partnership with Google -- an alliance long favored by analysts who believe it would boost the profits of both companies. It was unclear Saturday if Yahoo's plans for boosting its stock price include a Google partnership, which would probably face antitrust issues.

A Microsoft takeover of Yahoo would also be scrutinized by antitrust regulators in the United States and Europe. The antitrust uncertainties could be cited as one of the reasons that Yahoo's board decided to spurn Microsoft.

Facebook and Vodafone

Facebook Links Up With Vodafone on Mobile Platform

Vodafone is the first operator to use the Facebook for Mobile Operators platform and has started services in the U.K. and Germany, said Jed Stremel, Facebook's director of mobile division. Vodafone will soon expand the program to Greece, Italy, Spain, Ireland and Portugal.

The platform involves giving operators a set of technical specifications intended to resolve some of frustrating hang-ups when using Facebook on a mobile phone rather than a PC, such as smoothing out login problems and opening up other features, Stremel said.

The move by Facebook, which ranks next to MySpace as one of the most popular social networking sites, is intended to grow its user base, which the company estimates at 64 million users. So far, the company says it has 6 million users of Facebook Mobile, an unsupported mobile version of the Web site that will now get full support, Stremel said.

At the moment the mobile site does not have any advertising. Stremel would not reveal the financial details of Facebook's deal with Vodafone, although he said operators will be able to generate revenue from data services as their subscribers access Facebook.

The long-term hope for social networking sites is rich online advertising revenue. Facebook, which has an exclusive deal with Microsoft to place ads on the site, also did not say when it would put advertising on the mobile site.

The company is hoping to lure more operators by the simplicity with which they can enable Facebook, Stremel said.

Facebook has created special Web pages with instructions on how operators can set up their systems, he said. The instructions, for example, let operators add system settings that will let their subscribers send MMS (Multimedia Messaging Service) with photos or video to their Facebook profiles, Stremel said.

The platform also includes other specifications designed to stop abuse of Facebook, such as spamming, Stremel said. When someone sends their first MMS with a photo to their profile, the user is sent back a confirmation message with a code or a link. That confirmation then links that person's phone with their Facebook account, Stremel said.

Dow, S&P 500 drop,Nasdaq up

The Dow and the S&P 500 dropped on Friday as concerns about the outlook of bond insurers weighed on financial shares, but bargain hunting in the technology sector pulled the Nasdaq into positive territory.

Shares of JPMorgan Chase & Co (NYSE:JPM - News) dropped 1.7 percent, and led the Dow's losers, while credit card and travel services company American Express Co (NYSE:AXP - News) slid 2 percent.

The drag from financial shares was driven in part by investor unease about the outlook for bond insurers after Moody's Investors Services cut its "AAA" ratings for bond insurer XL Capital Assurance, a unit of Security Capital Assurance (NYSE:SCA - News).
Comments from a Federal Reserve official saying a recession might not be avoidable were another headwind for stocks.

The Dow Jones industrial average (DJI:^DJI - News) was down 67.06 points, or 0.55 percent, at 12,179.94. The Standard & Poor's 500 Index (^SPX - News) was down 6.00 points, or 0.45 percent, at 1,330.91. The Nasdaq Composite Index (Nasdaq:^IXIC - News) was up 3.59 points, or 0.16 percent, at 2,296.62.

Investors fear that downgrades of bond insurers could further harm the banking sector and stunt the global economy as financial institutions take a hit from subsequent write-downs of their assets.

JPMorgan shares fell to $44.23 on the New York Stock Exchange, while shares of American Express dropped to $45.55.

Shares of MBIA Inc (NYSE:MBI - News), the world's largest bond insurer, slipped by 0.4 percent to $14.12.

The company on Thursday sold $1 billion of shares to raise capital it hopes will help it avoid a rating downgrade. The sale was at a discount to MBIA's closing price.

On the Nasdaq, Apple Inc (NasdaqGS:AAPL - News) provided the biggest lift to the index, with a gain of 1.7 percent to $123.24. Tech stocks recently have taken a beating as investors worried about business spending, making some stocks attractively priced.
as attractive valuations lured investors to seek bargains.

San Francisco Federal Reserve Bank President Janet Yellen, speaking in Honolulu, indicated on Thursday a willingness to cut U.S. interest rates further, but she said she was not confident a recession can be avoided this year.

Friday Market slips at open

Stocks opened lower on Friday after a Federal Reserve official said a recession might not be avoidable and fresh concerns arose about the outlook for bond insurers.

The Dow Jones industrial average (DJI:^DJI - News) was down 39.10 points, or 0.32 percent, at 12,207.90. The Standard & Poor's 500 Index (^SPX - News) was down 5.16 points, or 0.39 percent, at 1,331.75. The Nasdaq Composite Index (Nasdaq:^IXIC - News) was down 3.29 points, or 0.14 percent, at 2,289.74.

This Is a Report By Tarek El Hewehi.

YRC Worldwide to Close Service Centers

YRC Worldwide Inc., the nation's largest less-than-truckload carrier, said two of its subsidiaries will close a combined 27 service centers and take $10 million in charges related to the move, according to a Securities and Exchange Commission filing Thursday.

YRC's USF Holland unit will close six service centers located in Albany, Ga., Jackson, Miss., Lumberton, N.C., Little Rock, Ark., Mobile, Ala., and Metter, Ga.

The company's USF Reddaway division will close 21 service centers located in Louisiana, New Mexico, Oklahoma and Texas. Both divisions are units of USF Corp., which YRC purchased in May 2005. But last month it took a $782 million write-down on the value of the two companies, citing various operating issues and overall slumping demand

Service will still be available to these areas through other branches of its North American Transportation division.

The Feb. 22 closures are a "significant component" of a previously announced $50 million profit improvement plan for the regional transportation unit, YRC said.

YRC expects to take a $5 million charge for lease terminations and another $5 million charge for employee severance. The majority of these charges are expected be taken in the first quarter of 2008.

The Holland closings will affect 300 workers and the Reddaway closings will affect an additional 800, said Michael Smid, president and chief executive of YRC North American Transportation, which oversees the two subsidiaries.

Smid said the centers were among the least efficient of the two companies

"We feel both of those carriers are better off a little smaller, but much more capable," Smid told The Associated Press.

Smid said the company would work with customers who use the centers to either ship their freight through other YRC-owned carriers in their area or use other YRC network points if they want to stay with Holland or Reddaway.

Stifel, Nicolaus & Co. Inc. analyst David G. Ross applauded the move

We believe this is a step in the right direction for the regional companies that were once solid operators in their respective legacy territories but were stretched too thin (after being acquired by YRC Worldwide) when trying to expand into other regions and/or integrate another lesser carrier into their network," Ross said.

"When these two carriers expanded coverage, pricing became more difficult, less disciplined, and yields and margins suffered, as a result."

The company may close other centers as it continues to examine its regional business, he added.

"These shutdowns should be good for the less-than-truckload industry, as it removes a poor pricer from some Southern and Southwestern regional markets," Ross said

He maintained his "Hold" rating on the stock, saying he sees "evidence that the recovery plan is working."

Less-than-truckload, or LTL carriers, usually fill their trucks with freight from a variety of sources and might re-sort and redistribute it at a company terminal along their route.

Shares of YRC retreated from a surge after the announcement to close up 11 cents to $17.57 Thursday.

Stocks Finish Higher After Fitful Day

Wall Street finished moderately higher in fitful trading Thursday as investors, still nervous about the economy, decided to buy back into a stock market pummeled by three straight days of losses.

With the market having largely priced in the possibility of a recession, many believe there are plenty of valuable stocks at cheap prices. Before Thursday, the Dow Jones industrial average had fallen this week by 543 points, or 4.26 percent, giving up all of last week's sharp gains.
Though the market ended up rising Thursday, trading was extremely fickle due to a batch of gloomy data that included declining January sales at major retailers, a drop in December sales of pending homes, and a disappointing outlook from Internet networking supplier Cisco Systems Inc. The major indexes seesawed throughout the day.

"We're kind of trying to create a silk purse out of a sow's ear here," said Hugh Johnson, chief investment officer of Johnson Illington Advisors. "The earnings are lousy, the economic numbers are lousy."

The Dow rose 46.90, or 0.38 percent, to 12,247.00 after trading down about 80 points and up about 130. The index remains more than 13 percent below its record close on Oct. 9, 2007 of 14,164.53.

Broader stock indicators also recovered some ground. The Standard & Poor's 500 index rose 10.46, or 0.79 percent, to 1,336.91. The technology-heavy Nasdaq composite index rose 14.28, or 0.63 percent, to 2,293.03.

Government bonds fell. The 10-year Treasury note's yield, which moves opposite its price, rose to 3.76 percent from 3.60 percent late Wednesday.

Investors may have been encouraged to buy back into stocks due to a rise in the dollar, whose decline over the past several months has contributed to worries about inflation and a possible drop in foreign interest in U.S. investments.

Peter Cardillo, chief market economist at Avalon Partners, said the dollar's advance followed remarks by European Central Bank chief Jean-Claude Trichet that the United States and Europe remain economically intertwined. This suggested to investors that strength in other countries can help stabilize the United States during its rough patch. Fears of a global economic slowdown have been weighing on stocks around the world.

As expected on Thursday, the Bank of England lowered its key interest rate by a quarter percentage point to 5.25 percent, its second cut in three months, while the European Central Bank left its key rate unchanged at 4 percent.

Another argument for bargain hunting Thursday was that the recent spate of negative economic data raises the likelihood of the Federal Reserve lowering interest rates again to spur growth. Atlanta Fed President Dennis Lockhart said Thursday the Fed's "focus, religiously, is on the general economy, the real economy."

Moreover, the stock market often portends economic declines, rather than the other way around.

"Stocks do worse during times of slow growth than they do during recession," said Brian Gendreau, investment strategist for ING Investment Management. "If we're in a shallow and short recession, for all anyone knows, we might be halfway through."

The market's indecisive movements throughout the day show, however, that it has not moved past the many worries swirling about personal spending, the crumpling housing market and deteriorating conditions in consumer credit.

Late Wednesday, Internet networking supplier Cisco Systems Inc. issued a 10 percent sales growth forecast for its current quarter that fell well below the 15 percent Wall Street projected. But Cisco finished up 30 cents at $23.38, after some investors saw the stock was undervalued.
And in a counterintuitive move, retail stocks -- also regarded as cheap right now -- rose even after the nation's retailers logged their worst January in about 40 years. Wal-Mart Stores Inc. reported a 0.5 percent rise in January same-store sales, or sales at stores open for at least a year, while Target Corp., Gap Inc., Limited Brands Inc. and AnnTaylor Stores Corp. each said their sales fell.

Not all news about retailing was bad -- J.C. Penney Co. raised its earnings forecast for the last three months of 2007. Its stock jumped $3.72, or 8.5 percent, to $47.44.

But on top of the mostly weak retail reports, the Labor Department reported that jobless claims fell last week by 22,000, a smaller decline than many economists predicted, and the National Association of Realtors said pending sales of existing homes fell 1.5 percent in December.

Light, sweet crude oil rose 97 cents to settle at $88.11 a barrel on the New York Mercantile Exchange. Gold prices also climbed.

Oil prices had been gradually declining, so it's possible a slower economy is keeping inflation from accelerating. Still, many market participants are anxious about how much longer the Fed can continue to lower interest rates given relatively high food and energy costs.

The Russell 2000 index of smaller companies rose 10.29, or 1.49 percent, to 702.78.
Advancing issues outnumbered declining shares by nearly 2 to 1 on the New York Stock Exchange, where consolidated volume came to 4.44 billion shares, down from 3.89 billion on Wednesday.

Overseas, many Asian markets were closed for a holiday, but Japan's stock market was open and its Nikkei average rose 0.82 percent. In Europe, Britain's FTSE 100 fell 2.58 percent, Germany's DAX index fell 1.66 percent, and France's CAC-40 fell 1.92 percent.

Microsoft-Yahoo Deal Likely To Go Through

Yahoo Inc.'s (YHOO) stock was coasting just below Microsoft Corp.'s (MSFT) $31-a-share offer price Tuesday morning as more analysts said they believe the marriage will likely be consummated - even as they cautioned investors to be ready for surprises.

Yahoo has yet to respond to Microsoft's $44.6 billion bear-hug bid to acquire the Internet giant, a move which has prompted rival Google Inc. (GOOG) to publicly voice its opposition to the proposed merger.

On Tuesday, Yahoo was downgraded from buy to neutral by Banc of America Securities. It was the third such downgrade since Microsoft announced its offer on Friday, following similar moves by Susquehanna Financial Group and Soleil Securities Group.

The downgrades came after Yahoo's stock zoomed up more than 50% following the bid - which put the stock in range of several analysts' price targets.

In their reports, many analysts predict that the deal will likely happen and that, for now, investors would be wise to stick close to Microsoft's offer price, which they describe as generous.

"Given the significant premium above the Jan. 31, 2008, stock price, we believe shareholders would be apt to take advantage of this offer," analyst Brian Pitz of Banc of America Securities wrote in a note to clients.

Crawford Del Prete of International Data Corp. said he thinks the deal will eventually happen.

"But I think, given that it's hostile, it will take some time for Yahoo to sort through its options," he said in an email. "However, in the end I expect that they will conclude that this is the best option for shareholders, given the price that was offered and the absence of other suitors."
Still, there could be surprises.

Pitz pointed to reported negotiations between Yahoo and Google on a possible deal to outsource Yahoo's search ads to its rival as a way of blocking the Microsoft bid.

Microsoft's bid could also go higher and, contrary to the view of some observers, another potential buyer could emerge, he said.

"While it's difficult to raise debt in the current market environment, we believe a rival bid from a private-equity consortium is also possible," Pitz said.

Analyst Mark Mahaney of Citigroup, who raised his target price for Yahoo to $31 a share from $22, cited the two scenarios in a research note, but didn't give them as much as weight as other potential outcomes.

He said the $45 billion price tag and "the strategic value of Yahoo to Microsoft make the likelihood of a successful competing bidder very low."

An outsourcing deal with Google would be more likely and could be a viable strategy that could appease Yahoo's shareholders, he said.

But Mahaney gave more credence to another possibility: That Yahoo will reject Microsoft's offer, prompting the Redmond, Wash.-giant to bid higher, with the two giants eventually coming to an agreement.

"The deal makes significant strategic sense for Microsoft," he said. "Our review of bid histories in the software space makes us think this is the most likely outcome."

Mahaney cited another software giant, Oracle Corp. (ORCL), which has been on a buying spree over the past several years. In two prominent unsolicited bids - for PeopleSoft Corp. and, more recently, BEA Systems Inc. (BEAS) - the company ended up raising its offer price.

Many analysts still believe the proposed merger between Microsoft and Yahoo would meet stiff regulatory challenges in the U.S. and Europe.

But given Google's dominant position in online advertising, some of them believe Microsoft would clear this hurdle.

"We estimate that Microsoft and Yahoo today account for, at most, 30% of total U.S. online advertising, with their combined market share less in Europe," Mahaney said. "Thus, while we would expect substantial regulatory review, we assign this outcome only a 10% probability

Microsoft vs.Google

EVEN AS GOOGLE (GOOG: 506.80, +11.37, +2.29%) publicly lambastes Microsoft's (MSFT: 29.07, -1.12, -3.70%) proposed acquisition of Yahoo (YHOO: 28.98, -0.35, -1.19%), the search leader's stock is cratering, closing below $500 for the first time since August. But given the arduous challenge of making any giant acquisition work, especially one as fraught with potential delays and pitfalls as this one, Google's managers may be secretly licking their chops. Assuming the deal gets done — and that's a big if — Google's two largest competitors will be hindered by years of complicated integration. If anyone should be up in arms, it's probably shareholders in Microsoft.

"Google has to put up a stink just because that's their role in this situation," says Roger Kay, president of Endpoint Technologies Associates, a market intelligence firm. "But if I were in the boardroom at Google I would say something like, 'Let's act really upset about this deal but then let it slip through our fingers and have it go through.'"

Kay points out that the average for large integrations is two years, and this one is more complicated than most. Yahoo is based in Silicon Valley; Microsoft (already hardly beloved by the Yahoos) sits up in Redmond, Wash. The cultures are different. The engineering and marketing teams need to be sorted and assimilated. Yahoo operates on a lot of open source software. Microsoft, of course, runs on Windows. Just making the back ends of the two operations work together will be a tough technical challenge in and of itself.

"This is going to take project management on a scale that the Microsoft guys have never done before, and that is a formidable obstacle," Kay says. "And even if they're successful it's going to take a lot of energy and they will be somewhat distracted. That could give Google an opening."
Citigroup analyst Mark Mahaney pointed to that Friday after the proposed merger was announced. "This deal would be a material negative for Google if it were to change user behavior, which would then lead to a shift in ad spending," the analyst wrote. "But we don't think a Microsoft/Yahoo! combination would change user behavior at all. And we could see a scenario by which Google would actually gain more market share due to industry uncertainty over the integration of the deal."

Then there's the unknown of when this shotgun marriage will be consummated. Canaccord Adams analyst Peter Misek wrote Monday that if the deal gets done, competitive gains vs. Google aren't likely to start to emerge until 2009 at the earliest. Throw in the probability of antitrust reviews here and in Europe, and a closing could be pushed out even further. Bank of America Securities downgraded Yahoo to Neutral (Hold, essentially) from Buy Tuesday, saying that "the acquisition could face significant regulatory hurdles in the U.S. and particularly in the E.U., which could delay the acquisition from closing for quite some time."

Microsoft's big problem is that it needs to convert its piles of cash into capital for sustainable businesses that are going to make huge bucks a decade from now. But it's hard to see how throwing billions of dollars at Yahoo serves that end. Microsoft is a sprawling company with five businesses, and all of them are subservient to the company's lifeblood: Windows and Office. The online division isn't just an also-ran to Google and Yahoo; it's the only part of the company that loses money.

Meanwhile, Yahoo's been flailing about for years, losing share to Google and missing out on Web 2.0 innovations like social networking. True, it's the world's biggest destination on the Internet, but still...it's a portal. How 1990s. How quaint. No company is better than Microsoft at spinning a strategic vision, even if the quality of its software and hardware products too often falls short of its rhetoric. But to hear Chief Executive Steve Ballmer extol the opportunities and virtues of the deal, it's clear he's been drinking his own Kool-Aid.

NEWS AT A GLANCE

Toyota profits rise, growth slows

Toyota, locked in a race to overtake GM as the world's top automaker by sales, reported a 7.5 percent rise in quarterly profits, to $4.3 billion, but warned of slowing growth. The quarter's profit was Toyota's largest ever for a third quarter, but the percentage gain was the smallest in a year. Looking ahead, Toyota said that increased sales from China, Russia, and other emerging markets would only partly make up for slowing U.S. demand and the strengthening yen. "Cars sold in India and China are cheap and have smaller profit margins," said Yuuki Sakurai at Fukoku Mutual Life Insurance in Tokyo.

BP misses target, raises dividend

Oil giant BP, Europe's second largest company, reported a 53 percent rise in fourth-quarter profits, to $4.4 billion, which fell short of analysts' expectations. Refining outages and rising costs dragged BP's full-year profit down 5.5 percent, but oil output rose for the first time since 2005, as new fields in Angola, Trinidad, and the Gulf of Mexico came online, and the firm raised its dividend by 31 percent. BP shares rose in London early today. "The numbers are disappointing," said analyst Peter Hitchens at Seymour Pierce, "but I think that is more than made up for by the fact that we have got a step change in the dividend."

United adds bag-check fee

United Airlines said it is adding a $25 fee to check a second piece of luggage on domestic flights, becoming the first large carrier to charge for the service. United Milage Plus frequent fliers with at least "premium" status won't be charged, nor will passengers on most international flights. The fee, attributed to rising fuel costs, applies on flights leaving May 5 and beyond. Analysts say other airlines will likely follow suit. (Bloomberg) "Everybody is chiseling away at everything that you thought you deserve," said Bestfares-dot-com CEO Tom Parsons. "But people shouldn't be upset because we still want to fly coast to coast for $199."

Green habits, not greenbacks

A growing number of consumers are looking to cut back on their "carbon footprint," and that means buying less. But by trying to reduce their greenhouse gas emissions -- and lower their expenses as they weather the hangover at the end of the cheap-credit binge -- green consumers might also be hampering efforts to fend off an economic slowdown. The new frugality could render ineffective the stimulus package wending its way through Congress, for example, which relies on free spending. "You know there's a shift, when drinking tap water is cooler than drinking Pellegrino or Evian," says trend forecaster Faith Popcorn.

The subprime drawing board

Plans to fix our mortgage mess "are like belly buttons," says David Weidner in "Everybody's got one, and they're all pretty much useless." But some recent plans have emerged that could "have positive effects for everyone." The Center for American Progress, apparently "hell-bent on appeasing everyone," wants the government to extend interest-only loans to troubled homeowners and buy and sell existing subprime debt. More promising, Punk Zeigel analyst Richard Bove would offer 1 percent subsidized loans to many subprime borrowers, at a "reasonable" taxpayer cost of $150 billion. Either way, "it won't be pretty," but doing nothing would be uglier still.

Paradise isn't easy

Retiring overseas may sound attractive, says Jeff Opdyke in but it "can have its logistical headaches." Because most countries have lower costs of living, retiring baby boomers assume they can move abroad to "stretch their nest egg." Before pulling up anchor, though, make sure you figure out banking, health care, and housing. The Internet makes banking easier, and Social Security checks will be sent almost anywhere. But dealing with local banks and real estate laws can be tricky. And while some countries will "lure" you with retiree tax incentives, remember, the IRS taxes your income "no matter where it's earned in the world."

GOOD DAY FOR: Trees, after the White House scaled back the number of printed copies of its four volume, 2,000-page-plus 2009 budget, saving an estimated 20 tons of paper, 480 trees, and $1 million over five years. The reduced paper count stems from a decision to charge the public, congressional offices, and the media for copies of the budget.

BAD DAY FOR: Looking into the future, after Singapore-based securites-broker-turned-astrologer Tony Tan is predicting that the Chinese Year of the Rat will be characterized by losses. Tan successfully predicted that the Year of the Pig last year would see "peak performances" in Asian stocks. "Just like a rat, investors will have to be nimble" this lunar year, which begins Feb. 7, Tan says.

NOTED: Last Sunday's Giants-Patriots matchup was the most-viewed Super Bowl ever, and the second-largest TV event in U.S. history. According to Neilsen Media Research, an average of 97.5 million viewers watched the game, second only to the "MASH" series finale, which drew 106 million. Fox, which aired the game, charged $2.7 million for 30-second commercial spots. TiVO said more people watched the commercials than the game.

United to charge $25 for second checked bag

Starting next spring, United Airlines will begin charging certain domestic passengers for more than one piece of checked-in luggage to help offset the soaring cost of jet fuel, the No. 2 U.S. carrier said Monday.

The move by the operating subsidiary of UAL Corp. (UAUA:38.66, -2.48, -6.0%) is the first taken among the so-called legacy carriers including Northwest Airlines (NWA:17.85, -2.14, -10.7%) , Delta Air Lines (DAL:17.60, -0.93, -5.0%) and Continental Airlines (CAL:27.85, -1.40, -4.8%) , but it's bound to be imitated as a way to defray expenses without alienating fare-conscious travelers.

"They are the first, but they certainly won't be the last," said airline consultant Terry Trippler of Trippler Associates. For the airlines, each bag is additional weight and thus represents fuel expense.

"The airlines are looking for every possible revenue source they can find and still cut fares without cutting wages, because right now they can't go any lower," Trippler said.
Airlines across the industry have struggled to deal with soaring jet fuel prices while remaining competitive. Chicago-based United said the new policy is expected to generate $100 million in annual cost savings and new revenue.

In the quarter ended Dec. 31, UAL Corp. said fuel costs increased $359 million, or 25%, from a year earlier.

For domestic passengers who do not have status in a Mileage Plus or Star Alliance, a second piece of checked luggage will cost them $25, effective May 5. There will be no charge for their first bag.

United will now also charge a flat rate for all customers checking in up to four additional bags at $100 each. Previously, the airline charged in a range of $85 to $125 a bag.
Some smaller airlines already have been charging passengers for checking in more than one piece of luggage, while at least one low-cost carrier, Spirit Airlines, charges $10 each for the first two bags.

United said that, based on research into passengers' habits, it determined that only one in four check in more than one bag. By charging the 25% of people who check in more than one bag, the airline said it can bring down the weight of the airplane and help keep fares in check.
UAL's shares slipped 4.9% at last check to $39.15, in line with weakness

The Microsoft-Yahoo deal's bad numbers

Most of the analysis of Microsoft's $45 billion hostile offer for Yahoo has focused on technology and the role Yahoo could play in the Microsoft-Google wars. Today, though, let's look at what almost everyone has overlooked: the numbers. More specifically, we'll look at the way that one of Wall Street's biggest hitters, Joe Rosenberg, looks at the proposed deal.

Rosenberg, chief investment strategist at Loews Corp. (LTR), the giant conglomerate, is one of the most influential voices on Wall Street. In fact, his criticism of Microsoft in a Barron's interview two years ago, in which he criticized the firm's use of capital and suggested a $50 billion stock buyback, was a big factor in sparking the $40 billion buyback program that Microsoft (MSFT) launched in the fall of 2006.

So Rosenberg's opinion matters. And he thinks Microsoft's offer for Yahoo (YHOO) is nuts. "This is like a person who's completely lost his mind," Rosenberg told me in an interview. "It's absurd. They're not going to earn anything like a reasonable rate of return on their investment in Yahoo. It just doesn't make sense."

"This deal would do more harm to Microsoft shareholders than any of its competitors can do to it," Rosenberg said. "The company has lost sight of its principal focus, which is to produce value for shareholders."

“This deal would do more harm to Microsoft shareholders than any of its competitors can do to it.” Joe Rosenberg

Before we proceed, two disclosures. First, Rosenberg told me that Loews owns Microsoft stock. Second, Loews is one of my biggest individual holdings, which means I have money riding on Rosenberg's investment acumen.

Back to the main event. Until the Yahoo bid surfaced, Rosenberg was predicting that Microsoft would earn almost $2 a share in its current fiscal year, rising steadily to more than $4 a share in four years. (A major element in his thinking: Microsoft's sales to "developing markets" such as China, India and Eastern Europe will soar.) So at $32 - its price before news of the Yahoo offer drove its stock down sharply Friday - Microsoft looked cheap to Rosenberg. Now, he fears, Microsoft may be making the same mistake as other companies that did large, failed high-tech takeovers.

No, he's not talking about the 2000 deal that combined America Online with my employer Time Warner (TWX), which many people have cited as a cautionary tale for Microsoft-Yahoo.

Wrongly, in Rosenberg's opinion (and mine). How so? Because America Online's purchase of Time Warner turned out great for AOL shareholders, whose stock fell far less than other Internet issues when the bubble popped. The deal was disastrous for the sellers - the old Time Warner's stockholders - because the value of their shares was eviscerated.

The real parallels to Microsoft-Yahoo, says Rosenberg, citing his 47 years on Wall Street, are two largely-forgotten disasters: Xerox' $1 billion purchase of Scientific Data Systems in 1969 and AT&T's (T) $7.5 billion purchase of NCR in 1991. In both cases, the acquiring company paid top dollar for firms whose products and technology rapidly became obsolete.

Rosenberg doesn't pretend to be a tech maven, but he says it's clear that the market - which sent Yahoo's stock down 45% from October through last Thursday - is saying something negative about Yahoo's businesses and prospects. Microsoft, Rosenberg says, would be well-advised to listen.

Should Microsoft buy Yahoo, Rosenberg says, he, like other folks looking at this deal, expects Microsoft and Google to engage in price wars in the search and advertising businesses. But Rosenberg carries that thought one level further. Such a price war would hurt Yahoo's already-anemic profit margins, Rosenberg says, making a Microsoft purchase even more problematic.

Microsoft's future free cash flow per share would be substantially higher if it buys back its own shares, he said, rather than buying Yahoo by issuing about $23 billion of new stock and spending a net $15 billion or so in cash. (That cash number takes into account the approximately $8 billion of cash and marketable securities that Yahoo owns.)

Rosenberg says he's not trying to hurt Microsoft, he's trying to help. "They don't realize that by criticizing this deal, I'm trying to do them a favor," he says. And, of course, to do Loews a favor, too

Oil Prices Fall Below $89 a Barrel

Oil prices seesawed Monday as gains in global stock markets failed to cancel out worries of a possible U.S. recession that would stunt oil demand.

European stock markets rose again, following last week's rise on Wall Street.

By the afternoon in Europe, London's FTSE index was up 0.5 percent, the CAC-40 in Paris gained 0.7 percent and Frankfurt's DAX was 1.2 percent higher.

Asian stock markets also climbed Monday. China's benchmark Shanghai Composite Index rose 8.1 percent, Hong Kong's Hang Seng index jumped 3.8 percent and Japan's Nikkei 225 index rose 2.7 percent.

Energy investors often view stocks as a proxy for economic growth, and in some recent sessions, movements in the oil market have closely followed that of global equities.

But Monday investors appeared to remain focused on weak economic data in the U.S. that pushed oil futures down nearly $3 a barrel at the end of last week.

"The high volatility in equities at a time when the oil markets are lacking a clear fundamental picture, has led to a greater oil-to-equity correlation in recent weeks," said Olivier Jakob of Petromatrix in Switzerland.

Light, sweet crude for March delivery was down 13 cents to $88.83 a barrel in electronic trading on the New York Mercantile Exchange by midday in Europe. Earlier Monday, the contract rose as high as $89.39 but also was as low as $88.07.

In London, Brent crude futures rose 1 cent to $89.45 a barrel on the ICE Futures exchange.
The Nymex contract dropped $2.79 to settle at that level Friday after the U.S. Labor Department reported that employers cut 17,000 jobs last month, the first reduction in more than four years and a sign that the economy continues to weaken.

Construction spending also fell by a record amount, according to the Commerce Department, reflecting a sharp pullback in residential building.

Responding to recent oil price declines, the Organization of Petroleum Exporting Countries said Friday it will maintain current oil output levels due to concerns that a weakening global economy will result in softer demand.

However, looking ahead to the next meeting in March, Qatar's Abdullah bin Hamad Al Attiyah said "all the possibilities are there" -- shorthand for a possible cut in production, if the U.S. economy weakens enough to cut into demand.

Other issues affecting the market were an attack by Turkish troops on Kurdish rebel targets in northern Iraq and a battle between gunmen and government troops near a petroleum-pumping station in Nigeria's lawless southern oil region.

Neither incident appeared to have disrupted oil flows, but analysts said both were causes for concern.

Heating oil futures rose 0.06 cent to $2.4495 a gallon while gasoline prices fell 0.02 cent to $2.2832 a gallon and Natural gas futures lost 7.9 cents to $7.661 per 1,000 cubic feet.

Wall St. awaits another rally

This week, Wall Street hopes economic, earnings data keeps rally going

The stock market has been on the upswing, but few investors are relaxing just yet. This week's data on housing, retailers and labor costs will give Wall Street an idea of whether the economy is weakening or inflation is accelerating - or both.

Wall Street had a case of the winter blues in January, and understandably. With banks reporting huge losses, uncertainty brewing about whether the economy is in recession, and Americans struggling to keep up with their debt payments, there was nowhere to go but down. The Standard & Poor's 500 index recorded its worst January since 1990.

But the stock market has bounced back - last week, the Dow Jones industrial average jumped 4.39 percent, the Standard & Poor's 500 index added 3.75 percent, and the Nasdaq composite index rose 4.87 percent.

The Dow remains 10 percent below the record close of 14,164.53 it reached on Oct. 9, but has recovered nearly 10 percent from the 15-month lows it hit in January.

There were many factors that helped buoy the market last week. The Federal Reserve met the market's hopes for another big rate cut by slashing key rates a half-point. Banks and regulators indicated they are working to help out the distressed companies that insure mortgage-backed bonds. And Microsoft Corp.'s (MSFT, Fortune 500) bid for the struggling Internet provider Yahoo Inc. (YHOO, Fortune 500) reassured Wall Street that although the credit markets are tight, deals are being pitched.

Recent government reports have not painted a rosy picture of the economy, but they haven't indicated the nation is in the midst of a deep recession, either.

The Labor Department's employment report last week showed a net job loss in January for the first time in four years, but a report from the Institute for Supply Management said the manufacturing sector expanded. The Commerce Department said personal spending is growing at the weakest pace in more than a year, but it also reported a solid gain in orders of big-ticket, durable goods.

The markets are angling for more rate cuts to stoke the economy, but what could tie the Fed's hands is inflation. High food, energy and healthcare costs are a reason consumers - particularly homeowners with tough-to-pay mortgages - are cutting back on discretionary spending. Those high prices may also be the only reason readings on personal spending are in positive territory.

The Commerce Department's index last week for personal consumption expenditures, a gauge of inflation, rose 0.2 percent in December from November levels. This week, the Labor Department reports on productivity and labor costs; the market is expecting labor costs to decline, and could be disappointed if they end up being higher.

"The worst of all possible worlds is stagflation," said Janna Sampson, director of portfolio management at Oakbrook Investments. Stagflation happens when the economy weakens at the same time prices are rising. It's a problem that can't be solved with rate moves; rate cuts spur inflation but boost growth, while hikes control inflation but also dampen growth.

This week, economists surveyed by Thomson/IFR are preparing for more signs that the economy is still growing, but very slowly because of a weak consumer.

They expect the Commerce Department's December factory orders index on Monday to tick up and the Institute for Supply Management's Tuesday report on January service sector growth to show a slight slowdown. They also expect the weekly ICSC-UBS chain store sales index on Tuesday to post a decline.

Meanwhile, the National Association of Realtors will release on Thursday its index on pending sales of existing homes, and economists predict a modest increase. And that same day, retailers are releasing their sales results for January.

Investors will also be paying close attention to speeches from Fed officials for insight into their thoughts on the economy and inflation, and whether the central bank is leaning toward lowering rates again when it meets March 18. Atlanta Fed President Dennis Lockhart, Richmond Fed President Jeffrey Lacker, Fed Governor Randall Kroszner, Philadelphia Fed President Charles Plosser and San Francisco Fed President Janet Yellen are all making public appearances this week.

The bulk of the earnings season is over, but there are some big names left to release their quarterly results. Companies reporting this week include media names such as News Corp. (NWS, Fortune 500), Walt Disney (DIS, Fortune 500) and Time Warner Inc. (TWX, Fortune 500); food sellers like Wendy's International Inc. (WEN) and Yum Brands Inc. (YUM, Fortune 500); and the homebuilder D.R. Horton (DHI, Fortune 500).

STOCKS TO WATCH

Yum Brands Inc. (YUM:35.24, +1.08, +3.2%) is expected to report fourth-quarter earnings of 42 cents a share, according to analysts polled by Thomson Financial.

News Corp. (NWS:20.01, +0.62, +3.2%) is forecast to post earnings of 27 cents a share in the fiscal second quarter.

Humana Inc. (HUM:81.84, +2.32, +2.9%) is likely to report earnings of $1.32 a share in the fourth quarter.

Clorox Co. (CLX:63.09, +1.75, +2.9%) is estimated to report fiscal second-quarter earnings of 54 cents a share.

Equifax Inc. (EFX:37.00, -0.09, -0.2%) is likely to post earnings of 57 cents a share in the fourth quarter.

Manitowoc Co. (MTW:39.17, +1.14, +3.0%) is forecast to post earnings of 68 cents a share in the fourth quarter.

Computer Sciences Corp. (CSC:42.14, -0.18, -0.4%) is forecast to report earnings of $1 a share in the fiscal third quarter.

Post Properties Inc. (PPS:42.62, +0.35, +0.8%) is expected to post earnings of 9 cents a share in the fourth quarter.

BE Aerospace Inc. (BEAV:41.84, +3.23, +8.4%) is projected to report fourth-quarter earnings of 44 cents a share.

Anadarko Petroleum Corp. (APC:60.04, +1.56, +2.7%) is estimated to post earnings of 77 cents a share in the fourth quarter.

Wendy's International Inc. (WEN:25.18, +0.78, +3.2%) is expected to report earnings of 23 cents a share in the fourth quarter.

Principal Financial Group (PFG:61.21, +1.60, +2.7%) is likely to report earnings of $1.01 a share in the fourth quarter.

Lincoln National Corp. (LNC:56.09, +1.90, +3.5%) is likely to post earnings of $1.36 a share in the fourth quarter.

PartnerRe Ltd. (PRE:79.48, +0.20, +0.3%) is estimated to post fourth-quarter earnings of $3.19 a share.

Savvis Inc. (SVVS:22.62, +2.42, +12.0%) is forecast to post earnings of 2 cents a share in the fourth quarter.

After Friday's closing bell, The Wall Street Journal reported on its Web site that the House Judiciary Committee will convene a hearing on Feb. 8 to examine Microsoft Corp.'s (MSFT:30.45, -2.15, -6.6%) proposed takeover of Yahoo Inc. (YHOO:28.38, +9.20, +48.0%) . The hearing will consider what the impact on competition of a potential tie-up between the two Internet giants would be, the newspaper said.

Watch list

Concerned by reports of Chinese military hacking into Pentagon computers, four House lawmakers are asking the Treasury Department for information related to its review of the acquisition of 3Com Corp. (COMS:4.05, -0.08, -1.9%) by a Chinese company and its U.S. partner. In September, 3Com said it agreed to sell itself for $2.2 billion to Huawei Technologies Co., the largest networking company in China, and Bain Capital Partners LLC. The lawmakers want to know "the extent and nature" of Huawei's ties to the Chinese People's Liberation Army and if such ties constitute a threat to U.S. national security.

CSK Auto Corp. (CAO:8.98, +3.03, +50.9%) confirmed that it has received an unsolicited proposal from O'Reilly Automotive Inc. to acquire all of the outstanding shares of CSK Auto but O'Reilly Automotive Inc. (ORLY:30.62, +1.19, +4.0%) has declined to sign a confidentiality agreement which precludes access to non-public information. CSK Auto said it plans to proceed with the process to enhance shareholder value as planned.

Dollar Thrifty Automotive Group Inc. (DTG:26.02, +1.64, +6.7%) lowered its adjusted earnings-per-share estimate for 2007 to a range of 90 cents to 95 cents from $1.75 to $1.85 previously. In GAAP terms, it expects earnings to be flat or post a loss of 5 cents a share. The car rental company cited weaker industry demand in the travel market, excess fleet capacity in the industry, and a weakening used car market for its more bearish outlook. The company also said it is suspending its share buyback program.

Liz Claiborne Inc. (LIZ:22.71, +0.82, +3.8%) has finished the strategic review of 13 of the 16 brands it placed under review and plans to conclude evaluation of the other three brands, Ellen Tracy, Kensie, and Mac & Jac, by the end of the first quarter, the company said Friday. It also said it will sell most of the assets and liabilities of Prana to Prana Living LLC, a company formed by Prana's management team and Steelpoint Capital Partners for $36.5 million in cash. The company will pay out $18.4 million to Prana founders in connection with the purchase of Prana in 2005 and record the amount as a charge in first quarter earnings.

Motorola Inc. (MOT: 12.69, +1.19, +10.4%) confirmed it received a notice from Carl Icahn to nominate four directors to the company's board. The notice, Motorola said, indicated that Icahn affiliates beneficially hold about 5% of Motorola's outstanding shares, or about 114.3 million shares. Separately, The Wall Street Journal said the company's CEO Greg Brown is assuming direct oversight of the company's handset unit after pushing aside division head Stu Reed.

Walt Disney Co. (DIS:30.66, +0.82, +2.8%) said it signed new five-year contracts for both its Chief Executive Robert Iger and Chief Financial Officer Thomas Staggs. The new contracts expire on Jan. 31, 2013, for Iger, and on April 1, 2013, for Staggs.

Microsoft finds new antitrust scrutiny

In a statement released shortly after the bid was made public, Sen. Herb Kohl, chairman of the Senate Antitrust Subcommittee, said, "We will need to scrutinize the deal carefully to insure that it will not cause any harm to the competitiveness of what has been a vibrant high tech marketplace, nor negatively impact the privacy rights of Internet users."

In addition, the Associated Press quoted a Justice Department spokeswoman as saying the agency will look into the competitive consequences of combining the companies, which together own about 32% of the U.S. search market. A department spokeswoman didn't immediately respond to a request for comment.

Such scrutiny is to be expected for any large deal involving Microsoft (MSFT:30.45, -2.15, -6.6%) , said Mark Ostrau, an antitrust attorney with Fenwick & West LLP in Mountain View, Calif.

Microsoft settled a Justice Department antitrust case in 2002, and remains under supervision in a Washington court as part of a related consent decree.

Earlier this month the European Commission announced the launch of two fresh probes into the company's competitive behavior, focusing on its Office and Internet browser software.

"Any time I'm asked to analyze a potential deal for a client with Microsoft, and handicap the level of [antitrust] review, I always say, 'You have to add the Microsoft factor'," Ostrau said. "Just about anything Microsoft does gets a close eye, and not without reason."

Microsoft's Windows software provides the digital framework for most PCs sold in the world, while its Office software dominates its respective market. That raises questions about any of Yahoo's extensive technology that could be pulled into either system and shut out competitors, Ostrau said.

Microsoft's bid for Yahoo (YHOO:28.38, +9.20, +48.0%) is widely seen as an effort to bolster competition with mutual rival Google Inc. in the online search and advertising markets. Google (GOOG:515.90, -48.40, -8.6%) has faced its own antitrust scrutiny over its pending acquisition of online advertising company DoubleClick, both here and in Europe.

"As in our recent examination of the Google-DoubleClick deal, we will need to investigate how this combination affects consumers, advertisers and businesses who increasingly use the Internet," Kohl said in his statement.

Ostrau speculated that should Microsoft succeed in buying Yahoo, the matter could get pulled into the consent decree that has Microsoft regularly reporting to a court on its competitive behavior. The decree was recently extended to November 2009, thanks to the efforts of a group of states led by New York.

However Jay Himes, the antitrust chief at the New York Attorney General's Office, said, "The consent decree and the Microsoft offer to buy Yahoo are entirely separate."

Edward Henneberry, co-chair of law firm Heller Ehrman LLP's European Practice Group with a focus on antitrust, said a combination of Microsoft and Yahoo could actually be presented by the companies as a boon for competition in the online advertising market, because it's currently dominated by Google.

"The case for them is they need the sufficient scale to compete with Google, and that'll be good for competition," Henneberry said. "This is going to get reviewed by agencies in the U.S. and Europe, and no one's thinking it won't be, but I wouldn't put any great note on that."

One of the complaints raised about the Google and DoubleClick merger was the large aggregation of user data that would be housed under one roof, theoretically making it more vulnerable to misuse. Such user data is collected by Internet firms to better target advertising.

Jeff Chester, executive director of the Center for Digital Democracy, which has opposed the Google and DoubleClick merger on privacy grounds, objected to Microsoft's bid for Yahoo.
A written statement from Chester said, "In an online era dominated by digital behemoths, consumers will be more vulnerable to having their personal information become the property of the GoogleClicks and Microhoos."