• Portfolio

07/07/08

Microsoft still looking at Yahoo bid



Any good salesman knows the word “No” is the first step in negotiating a better deal. Microsoft knows it. Microsoft had offered to buy its rival's search business but was turned down by Yahoo last month.

The software giant has said they’d be willing to re-open talks with Yahoo about a possible takeover if the search firm had a new board of directors.

It’s not an engraved invitation by any means, but it is Microsoft's clearest message yet that it is willing to strike a fresh deal with Yahoo. Takeover attempts collapsed in June after almost six months of maneuvering.

Microsoft had originally offered to buy Yahoo in January - with an offer worth about $47.5bn (£24.1bn).

But Steve Ballmer, Microsoft's chief executive, withdrew that bid in May after Yahoo's boss Jerry Yang demanded a higher price. Microsoft then tried to buy Yahoo's search business for $1bn and pay another $8bn for a stake in its remaining operations.

Yahoo wanted none of it - spurning Microsoft and looking at another suitor – rival Google. In a surprise move Yahoo opted for an online advertising partnership with Google.

That deal is being analysed by US anti-competition officials as the two firms combined would control more than 80% of the US search advertising market.

Yahoo’s investors are cheering on Microsoft’s new advances. A number of investors criticised Yahoo's decision, possibly helping open the door. The news that Microsoft is still interested in talking sent Yahoo shares up more than 10% to $23.55.

Microsoft said such a meeting and more serious talks could happen within months – most likely after Yahoo's August shareholder meeting.

Proposal

There are two options the software giant is willing to discuss. In a statement issued by Microsoft the company said they would be interested in discussing two options - buying the "search function with larger financial guarantees" or "purchasing the whole company".

Shareholder Carl Icahn has quite a hand to play first. Icahn is trying to oust Yahoo's current board, including the internet firm's co-founder and chief executive Jerry Yang. Icahn published an open letter to Yahoo shareholders Monday. In that letter he said he'd spoken several times to Microsoft chief executive Steve Ballmer over the past week.

Icahn, a U.S. billionaire who has amassed a 5% stake in Yahoo, has been in talks with Microsoft over the past week about a possible deal.

Replacing Yahoo’s nine directors at the firm’s annual meeting August 1 is the only way, he says, to salvage a deal with Microsoft.

Those opposed to the talks say such a deal isn’t in the best interest of the shareholders.
Yahoo said the push by Ballmer and Icahn to force it into selling its search business isn’t  necessarily a good move for stockholders.

"If Microsoft and Mr Ballmer really want to purchase Yahoo, we again invite them to make a proposal immediately," Yahoo said in a statement.

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