Tue, May 20, 2008 - Page 10 News List

Microsoft broaches new Yahoo option

CHALLENGING GOOGLEThe fact that Microsoft and Yahoo are talking again will lead investors to think it’s only a matter of time before the two sides work out a deal

AP , SAN FRANCISCO

Microsoft Corp is once again trying to team up with Yahoo Inc to challenge Internet search and advertising leader Google Inc, although at this point the renewed talks haven’t escalated to another attempt to take over Yahoo.

The Washington-based software maker disclosed the revived discussions on Sunday without providing any specifics about the nature of the deal being explored except to say it involved bolstering the companies’ position in the online search and advertising markets.

“There of course can be no assurance that any transaction will result from these discussions,” the statement said.

In a statement late on Sunday, Yahoo said its board is exploring several “value maximizing” alternatives and “we remain open to pursuing any transaction which is in the best interest of our stockholders.”

Microsoft emphasized that it hasn’t resurrected a US$47.5 billion takeover bid that its chief executive, Steve Ballmer, withdrew on May 3 after Yahoo CEO Jerry Yang (楊致遠) — acting on behalf of Yahoo’s board — demanded an additional US$5.5 billion.

But Microsoft left open the possibility that it might dangle another buyout offer of Yahoo, depending on how the discussions progress between the two companies and their respective shareholders.

Yahoo is facing intense pressure from its shareholders to reopen sales negotiations, with activist investor Carl Icahn threatening to replace the California-based company’s entire board unless a deal can be worked out before Yahoo’s July 3 annual meeting.

Although Microsoft hasn’t been in touch with Icahn yet, the software maker reached out to Yahoo after the billionaire revealed his plans Thursday to lead a shareholder mutiny, according to two people familiar with the current status of the discussions. These people requested anonymity because they aren’t authorized to speak on behalf of the companies.

The latest Microsoft-Yahoo talks could be aimed at providing an alternative to a search advertising partnership that Yahoo has been exploring with Google as part of its attempts to remain independent.

Last month, Yahoo completed a two-week test that allowed Google to use its superior technology to sell ads alongside a sliver of Yahoo’s search results. Since then, the two rivals have been mulling a long-term alliance that would likely raise antitrust concerns because the two companies combined control more than 80 percent of the US search advertising market.

While Google’s help probably would provide Yahoo with a short-term lift, it might hurt Yahoo in the long run by making Google even stronger, some analysts say.

Ballmer has said Microsoft will be less interested in Yahoo if it cedes control of search advertising to Google. Icahn has urged Yahoo’s board not to enter into any deals, such as a Google partnership, that might diminish the company’s value to Microsoft.

Nevertheless, some analysts believe a formal partnership between Google and Yahoo could happen any day. The mere acknowledgment that Microsoft and Yahoo are at least talking again will likely cause more investors to conclude it’s only a matter of time before the two sides work out an amicable deal.

The theory that Microsoft would eventually renew its takeover attempt helped cushion the blow to Yahoo’s stock since Ballmer withdrew an oral offer of US$47.5 billion, or US$33 per share, after Yang held out for US$53 billion, or US$37 per share.

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