Undeterred by the threat of a hostile takeover, Yahoo completed an acquisition of its own Tuesday by buying online video service Maven Networks...

Share story

SAN FRANCISCO — Undeterred by the threat of a hostile takeover, Yahoo completed an acquisition of its own Tuesday by buying online video service Maven Networks for $160 million.

News of the deal came as some employees began receiving layoff notices. The company announced last month that it plans to lay off about 1,000 workers.

In addition, the fund manager of the company’s second-largest shareholder said Tuesday that he expects Microsoft will sweeten its offer to buy Yahoo and that the offer will be difficult to beat.

The Maven acquisition marks Yahoo’s latest attempt to expand its online advertising network and snap out of a two-year financial funk that has culminated in an unsolicited takeover offer from Microsoft.

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.

Yahoo, based in Sunnyvale, Calif., 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 at Legg Mason, 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 met with Steve Ballmer, Microsoft’s chief executive, and spoken to Jerry Yang, Yahoo’s CEO and co-founder, to share his views.

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 Maven, based in Cambridge, Mass., 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 six-year-old startup works with a wide range of media outlets, including CBS Sports, Gannett, News Corp., Hearst and Sony Pictures.

Online video advertising is 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.

“We think video is going to become the third leg of the advertising stool,” Cadogan said.

As in search, Yahoo is trying to catch up to rival Google 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.

Yahoo plans to retain Maven’s roughly 70 employees even as it completes plans to lay off the 1,000 workers in other divisions as part of a plan announced two days before Microsoft’s bid.

Yahoo spokeswoman Diana Wong declined to comment on the layoffs.

Yahoo is expected to release additional details about the layoffs late this week or early next week.

Yahoo shares fell 1 percent, or 30 cents, to $29.57 Tuesday while Microsoft shares rose 13 cents to close at $28.34.

Material from Bloomberg News is included in this report.