Microsoft Corporation’s (NDAQ: MSFT) pursuit of Yahoo Inc. (NDAQ: YHOO) continues to generate headlines even as new material developments haven’t arisen in the last few weeks.

Today, numerous sources are claiming that despite speculation Microsoft has no plans to increase its $44.6 billion bid for Yahoo – even as Yahoo has attempted to make the case that it is much more valuable.

Microsoft seems to be counting on Yahoo’s lackluster investor presentations combined with a slowing economy to make its offer seem not only fair but unmatchable. Insiders at Microsoft have been quoted saying that they are the only game in town right now so why raise the bid when they are only bidding against themselves. In other words, despite Yahoo’s claims that its businesses are worth more than $44.6 billion, no other suitors have made an equal, yet alone higher, offer, so why should Microsoft increase its bid when shareholders seem interested in a deal?

Though both Time Warner Inc. (NYSE: TWX) and News Corp. (NYSE: NWS) have both been discussed as possible alternatives to Microsoft, not necessarily as purchasers of Yahoo but rather as strategic partners, nothing has come of such talk. In reality, neither company has the resources or desire to match the short-term value of Microsoft’s bid. Instead, the companies were used to try and cause an increase in the price of the existing Microsoft bid.

A legitimate issue to consider in the structure of Microsoft’s bid is that because it is a cash-and-stock offer, the value of the bid is susceptible to a slowing economy or bearish stock market. In fact, since the bid was announced two months ago, the real value of the deal has slipped from $44.6 billion to only about $42 billion. This decline is due to the decline in Microsoft share price.

Unless something significant changes, holding Yahoo shares in the hope that Microsoft will increase its bid or that a rival bidder will emerge is not a good bet.

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National City Corporation (NYSE: NCC) announced Tuesday morning that it is reviewing a range of "strategic alternatives", which is usually street-code for considering a sale of the company. The company offered no additional details, but there has been some speculation that advanced negotiations are already underway. However, large losses sustained in its mortgage banking business may prove to be a sticking point.

Wells Fargo (NYSE: WFC) and Key Corporation are the two companies reportedly in talks with the troubled mortgage banker. However, sources close to the situation say that a deal is unlikely until the buyers become more comfortable with the bank's residential real estate portfolio. The big problem is finding a buyer willing to pay a fair price without months of due diligence.

National City is also looking at other alternatives, including a sale of its asset management business and/or a sale of its stake in Visa. The company already sold a third of its stake in Visa for $450 million, which means the remainder could be worth another $900 million or more. Meanwhile, its asset management business is still doing well and would likely fetch a decent multiple.

National City is under pressure to come up with some cash after experiencing some heavy losses from their residential mortgage portfolio. Analysts have warned that its remaining $6 billion in risky loans may cause a problem if the company does not either raise additional capital or sell the company. The struggling geographic markets that it operates in will also mean a prolonged struggle if nothing is done.

The troubled mortgage banker already sold its subprime origination platform, First Franklin Mortgage, to investment bank Merrill Lynch at the beginning of the year for $1.3 billion. This proved to be a move in the right direction as Merrill Lynch was forced to close up shop just months after making the huge purchase. However, $6 billion in loans were left behind and are still held by National City.

In the end, National City saw losses of over $300 million last quarter and may see the same this quarter if changes aren't made. Many analysts are convinced that the company needs to take major action to raise some cash or it could face a prolonged downward spiral. Whether or not the company can successfully raise cash or sell itself remains to be seen, but this is definitely a story worth following over the next few months.

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CNET Networks (NDAQ: CNET) may have a valuable portfolio of domain names, but many investors just aren't seeing the value. Shares in the company have been trending down for the past three years and investors are ready for change. Recently, activist shareholders put pressure on the company to stop the destruction of shareholder value by making a series of fundamental strategic and operational changes. The question is: Will these changes work?

CNET's shareholder list now reads like a "who's who" of activist hedge funds, including JANA Partners and Sandell Asset Management. These activists released a whitepaper today detailing their disappointment in the company and recommending changes to solve the problems. Altogether, the group controls approximately 14.9 percent of the voting power in the stock, which means they have a significant say.

The whitepaper beings by pointing out the destruction of shareholder value. CNET shares hav declined (21)%, (52)% and (25)% in the one, two and three year periods ended March 28th 2008. This compares to (1)%, 6% and 39% returns for its stated benchmark peer index. Meanwhile, the company has also consistently underperformed numerous peers in profitability and growth, ranking last among these peers in key metrics.

The activist investors then blasted new plans by existing management to reverse coarse and begin creating shareholder value. JANA Partners also rejected CNET's offer of a single board seat today, vowing to continue its proxy battle to gain control of the board. The activists believe that current management has failed to act in the past and lacks the experience and expertise to stop value destruction.

So, what is the new plan for CNET? The activist shareholders proposed that CNET undergo a transition to strengthen its core assets and transition from "Web 1.0" to the modern internet. These efforts would include:

1. Improving CNET's Monetization Infrastructure - The changes to this infrastructure would include improving ad unit optimization and inventory utilization, enhancing the user experience, increasing advertiser ROI, improving navigation, and acquiring additional traffic.
   
   
2. Building a Vertical Ad Network - It is common for large companies like Google, Yahoo, and AOL to create vertical ad networks by syndicating out their sales and technology infrastructure to third party websites. This generates significant increased revenue by allowing a sales force to sell inventory on non-owned partner vertical sites.
   
   
3. Using a Third Party Ad Network to Monetize Unsold Inventory - Revenues and profitability can be significantly enhanced by allowing a third party to monetize unsold or undermonetized inventory. The company has rejected such ideas in the past and only recently agreed to explore it.
   
   
4. Reaccelerating Growth Through Intent-Driven Media Techniques - Internet users today are increasingly intent-driven, meaning they are driven to websites through search engines, social media and web reference links rather than seeking out specific brands. Therefore, syndication and SEO should be areas of focus.
   
   
5. Integration of Social Media and Enhanced Content - The move from "Web 1.0" to "Web 2.0" involves installing social media enhancements to boost growth and enhance the user experience. Social media relies on real user identities, widgets and very sophisticated communications platforms to drive relevant valuable content.
   
   
6. Improve CNET's Technology Platform for Publishing - An improved platform for publishing and managing content could reduce costs and lift efficiency by enabling editors to easily update content and automatically generate related information. More, other improvements could be made to improve SEO.
   
   
7. Bring CNET's Cost Structure In-Line with Peers - CNET is clearly under-earning its customer base when you look at peer revenue per average monthly unique user. And despite having greater scale, the company's margins are still well below that of their peers. Changes should be made to reduce costs and increase revenues.
   

CNET's response to these ideas has been rather negative. The board adopted a poison pill in the form of a shareholder rights agreement as well as several severance packages. Meanwhile, the company offered a meager one board seat to JANA Partners if they dropped the proxy contest. Now investors just have to wait and see if shareholders are more open to the idea of change.

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Lehman Brothers (NYSE: LEH) caused some commotion on the street Monday after issuing $4 billion in preferred stock. The move was intended to quench rumors of a capital shortage, but instead confirmed to many that the bank is facing problems. Meanwhile, existing shareholders aren't too happy about having their stakes diluted by up to five percent. The stock jumped 10 percent this morning, however, after investors digested the news overnight. So, what is the real story?

Short interest in Lehman Brothers has increased five-fold since early 2007 as shares fell more than 40 percent. These short sellers bet that the stock will decline by borrowing and selling shares with the hope that the stock price falls before the borrowed shares have to be purchased and replaced. So far, these investors have made money as fear continues to grip the market and force the financial sector downwards.

Lehman Brothers has vehemently denied rumors of a capital crunch, saying that it has $31 billion in liquid assets along with $65 billion in other assets that it could easily borrow against. However, investors are still a little leary given the rapid demise of rival Bear Stearns (NYSE: BSC) that came as a result of similar rumors. More, Lehman Brothers in many ways has a similar risk profile to Bear Stearns.

Lehman Brothers currently holds $31.8 billion in residential mortgage loans and $13.5 billion in Alt-A loans. So far, the firm has been forced to write down this portfolio by more than $3 billion. However, Lehman insists that the remainder of this portfolio is well-hedged and and future losses will be offset by gains in other areas.

The greater concern is its $31 billion commercial real estate portfolio that continues to face pressure. Many commercial real estate projects, like its Archstone-Smith Trust investment, are falling through amid the poor economic climate. Fewer corporations are expanding while more are laying off significant portions of their workforce. The result is fewer tenants and lower rental prices as a result of consistent supply.

The move upward today comes after foreign markets rallied on the news. This likely spooked short-sellers who then took action to repurchase their shares before the stock rallied. These repurchases combined with existing demand is likely what sent shares soaring higher. How much of the demand for shares was actually driven by confidence as opposed to shorts covering remains to be seen. 

In the end, Lehman Brothers has some significant exposure remaining that could put the firm at risk. However, it looks like its $31 billion in liquid assets should be enough to cover at least for the near term. The fact that it was able to easily raise $4 billion also illustrates confidence by Wall Street. The problem is that it came at the expense of existing shareholders and further spooked the market in general as things still aren't getting better.

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New research data shows that online advertising is beginning to run out of steam at what could become a turning point for the industry. Many analysts have been concerned that such trends would continue as the industry began to mature, but the decline in consumer spending could expedite the process as fewer consumers click on ads while more publishers are looking to fill ad inventory. The big question is whether or not this trend will be permanent.

Citigroup's Mark Mahaney is one such concerned analyst and reduced his price target on Google Inc. (NDAQ: GOOG) this morning amid concern that there is deterioration on paid click growth. The reason? ComScore, which measures online trends, released its January 2008 qSearch paid click report that showed a 7 percent sequential decline versus December 2007 and a flat annual growth in paid clicks for Google. More, the number of paid clicks per Google search query declined by 8 percent. This is clearly bad news for intermediaries like Google that rely on transaction volume to drive revenues.

Meanwhile, a recent report put out by the Newspaper Association of America showed that publishers are being hit equally hard - especially newspapers advertising online. The report showed that such advertising had slowed down from a 30 percent growth rate during the past three years to just 18 percent now. Unfortunately, the move downward comes at a critical time for newspapers that are under pressure to increase their online revenues as subscription and print advertising numbers decline.

The trend is a disturbing one that could last some time. Consumers that have no money are less likely to click on advertisers and spend money. This means that advertisers are going to pay less per click or banner impression. Given that the supply of publishers is unchanged, this means that there is a lot of inventory with few buyers. Unfortunately, this spells lower payouts for publishers like newspapers and less money for intermediaries like Google. It could end when the consumer situation recovers, but whether or not it will see the 30 percent a year remains to be seen.

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Ansys Inc. (NDAQ: ANSS) announced today that it agreed to buy Ansoft Corporation (NDAQ: ANST) for $832 million in the form of both cash and stock.

The deal will put both simulation-software companies under one roof while giving Ansys access to Ansoft’s valuable electronic-design automation software – software “used to simulate high-performance electronics designs found in mobile communication and internet devices, broadband networking components and systems, integrated circuits, printed circuit boards and electromechanical systems” according to the press release on the deal.

Under the terms, Ansoft shareholders get $16.25 in cash and 0.431882 share of Ansys stock for each share of Ansoft they currently own – which values Ansoft at a 39% premium to Friday’s closing price.

Ansys will fund the deal by issuing 11.1 million shares of new stock and using $346 million of a credit line with Bank of America (NYSE: BAC). In other words, this acquisition is funded by diluting current shareholders and debt.

Ansys President and CEO James E. Cashman III said, "Both companies have a strong commitment to their customers and employees, and share a passion for the development of innovative products and services and a history of world-class execution. This combination will further strengthen these values and will allow us to better serve our customers by accelerating the delivery of comprehensive, customer-driven engineering simulation solutions and by enabling us to provide high quality support throughout the world.”

Though the deal may better serve customers, in the short-term Ansys expects the deal will only “modestly” help earnings per share but raise revenues to nearly $500 million annually. Only time will tell how Ansys balance the advantages of this acquisition with the dilution and debt that are making it possible.

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The newspaper industry is making the news, but not in a good way. The Newspaper Association of America reported that ad revenues in the industry have fallen by 9.5 percent in the biggest drop in any year since 1950. The decline comes at the heels of an economic slowdown and an increase in online advertising that together have put a damper on the fourth quarter - a peak period for ad sales.

The nation's largest newspaper company, Gannett Company (NYSE: GCI), was one of those hardest hit with a 7.2 percent drop in revenues. The numbers reflect a growing trend in the daily newspaper industry, as more readers flock to the Internet for news. This has led to a decrease in circulation and revenues in print publications around the country that has sent many newspaper companies to 52-week lows.

Many newspapers have relied on their online news services to at least partially offset losses in their print division. These online newspapers have seen revenue growth of 30 percent over the past three years, but the economic slowdown dropped this rate of just 18.8 percent during the fourth quarter. Meanwhile, online advertising revenues for newspapers still only account for around 7.5 percent of total revenues.

One of the solutions to this problem is being offered by Yahoo Inc. (NDAQ: YHOO) of all companies. The search giant plans to roll out a new set of online ad tools for 600+ newspapers that have joined its consortium. Reports have indicated that Yahoo has some 572 people working full-time on the project that could help newspapers successfully syndicate and monetize their content online to offset declining print revenues.

The Yahoo newspaper consortium was formed in November of 2006 and initially involved a combination of its HotJobs help-wanted site with local newspapers. Many saw great success with this program and are looking forward to the company's next beta testing of a platform that will help publishers target behaviorally and geographically across its growing network of newspaper sites. Few details of the new program have been leaked, but newspaper executives are uniformly impressed.

This potential for online advertising in the newspaper industry has prompted some investors to push for a separation of online and print publications via a spin-off of the online divisions. The theory as that this would allow investors to assign a higher multiple to the online segment and allow investors to unlock value. Unfortunately, this would leave the print publication to die a slow death or survive on razor-thin margins.

In the end, the newspaper industry continues to struggle with both an economic decline as well as a move from print advertising to online advertising. The solution to this problem is to embrace online advertising and Yahoo may be the answer for the industry. Meanwhile, many investors are insisting on a series of spin-offs to unlock value for shareholders and enable the online segments to growth.

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Citigroup Inc. (NYSE: C) investors are looking for change and new chief executive Vikram Pandit is ready to act. The bank announced a broad restructuring move after the banking giant loss half of its market value in six months thanks to the sub-prime crisis. The new additions to the larger restructuring plan involve breaking up the consumer banking group into regional divisions and separating its credit card division.

The consumer banking business saw a 35 percent decline in profits last quarter due to consumer mortgage defaults and credit concerns. The performance of the division is important as it accounts for nearly 70 percent of Citigroup's revenues. Previously, the unit was ran by two people but now it will have five bosses as new blood is brought in to change things up.

The move to split the consumer banking business comes amid a larger restructuring that has taken Vikram Pandit across the world slashing more than 6,000 jobs. The executive also worked to reduce loans and securities on the company's books in order to shrink its balance sheet and reduce risk. This is a huge move given that the company's balance sheet is the largest in the world with over $2.2 trillion of assets.

Shareholders remain divided on whether or not the Citigroup will be able to pull itself out of this mess. Some see this new management shake-up as irrelevant. After all, changing who reports to whom makes very little difference after the fact when everyone knows where the problems lie. Others like Oppenheimer analyst Meredith Whitney are predicting steeper additional write-downs for the troubled firm.

In the end, Vikram Pandit must work to prove to shareholders that he can enforce change. He may have worked to make the organization much leaner, but it will take more than that to solve its problems. In particular, it will need to work to setup better risk control measures as well as work to reduce the amount of bad assets on its balance sheet to limit further losses. Whether or not this can be accomplished in the near term remains to be seen.

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As reported here Wednesday, Take-Two Interactive Software's (NDAQ: TTWO) board rejected Electronic Art's (NDAQ: ERTS) most recent buyout offer, saying that it was not in the best interest of shareholders. Instead, the company also confirmed that it would explore strategic alternatives to maximize shareholder value in other ways that could deliver a higher value than the current $2 billion EA offer.

In a strange move today, however, EA extended its $2 billion, or $26 per share, offer by a week while adding that a “poison pill” provision adopted this week by Take-Two be canceled or at least not apply to its current takeover attempt. A poison pill is a mechanism whereby new shares are issued in the face of a hostile takeover, thus raising the price of a takeover or making a takeover simply unfeasible.

EA's announcement is odd because it is acting as if Take-Two was pursuing it, not the other way around. "The actions of the Take-Two board may increase the risk for their stockholders by delaying a potential transaction," EA's Senior VP of Corporate Development Owen Mahoney said in a statement. "We continue to believe that our $26 per share offer price is full and fair, and that a transaction between Take-Two and EA is the most compelling combination financially, strategically and operationally for all parties."

EA's offer was set to expire on April 11, but now will remain on the table until April 18. Even so, Take-Two has continually said the price is too low, especially with a new release of its immensely popular “Grand Theft Auto” game coming up.

Take-Two Chairman Strauss Zelnick said the poison pill provision was instituted to "ensure that the Take-Two board has adequate time to consider all strategic alternatives for maximizing value for Take-Two stockholders. The agreement will not, and is not intended to, prevent a takeover of the company on terms that are fair to and in the best interests of all stockholders." In other words: EA's offer is too low, so we are going to do everything in our power to kill it or drive the price up.

Today's announcement by EA really is nothing more than a PR ploy that does nothing to change the likelihood of a deal at the current $2 billion price. The announcement is good news from the perspective of a Take-Two shareholder because it is clear EA has continued interest in the deal, and if EA really wants to get a deal done it is going to have to be at a price above $26 per share.

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Captaris, Inc. (NDAQ: CAPA) may be able to efficiently manage business data, but a strategic review of its own company is another story. Private equity firm Vector Capital offered to acquire the software company for $4.75 per share just last week, but the deal fell through after the company failed to take any decisive action. Now many shareholders are left wondering whether any deal will be done at all.

The news of Vector's offer came just a day after Captaris announced that it received unsolicited inquires from multiple parties about a possible transaction. The company then worked to establish a special committee of independent directors to evaluate strategic alternatives. It also hired RBC Capital markets as its financial advisor to help explore its options.

The problem came when the Captaris refused to accept a generous offer from Vector. The private equity fund was willing to sign an acquisition agreement that would allow the company to continue shopping for other higher bids while reimbursing them up to a million dollars for any legal expenses. Since many auction processes fail, this would provide investors for a fail-safe premium.

Unfortunately, Captaris rejected the offer for some reason. Vector immediately came out saying that it was "extremely disappointed" by the company's refusal to engage in meaningful discussions over their offer. This is especially true since many other large investors, including hedge fund Emancipation Capital, came out in support of the generous acquisition agreement.

"Our offer represents immediate and certain value, does not preclude the continuation of [the company's] exploration of other strategic alternatives, and thus would clearly be in the best interests of all Captaris shareholders," Vector said.

Emancipation Capital supported this notion and urged the company to move forward in signing the acquisition agreement. The hedge fund noted that by entering into the agreement, shareholders are assured of a price premium and have a reasonable shot at a higher offer without the risk of a failed auction. It also suggested that the company seek a higher price from Vector as a condition of the agreement as well as a lengthened go-shop timeline.

Captaris responded blandly yesterday by encouraging Vector to participate in its process of reviewing strategic alternatives on a fair and equal basis with other potential bidders. It also noted that it would evaluate any offer from Vector "on an equal footing with proposals from other interested parties." Today, Vector announced that Captaris has gone ahead and rejected the bid.

The move has many shareholders wondering just what happened. The only justification could be a substantially higher offer in the works by another party interested in acquiring the company. But then, why would it refuse entering into what would essentially be a standby offer? And why wouldn't it seek a higher bid instead of simply rejecting the offer? These are all questions that many shareholders are now looking to have answered.

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