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Microsoft Pri0

Welcome to Microsoft Pri0: That's Microspeak for top priority, and that's the news and observations you'll find here from Seattle Times reporter Sharon Chan.

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July 7, 2008 6:30 AM

Microsoft would pursue Yahoo acquisition if new board were elected

Posted by Benjamin J. Romano

Microsoft CEO Steve Ballmer and billionaire activist investor Carl Icahn have spoken frequently in the last week about the prospects of a deal to buy some or all of Yahoo should Icahn's slate of director candidates win control of the company at the Aug. 1 Yahoo shareholder meeting. Icahn issued another open letter to shareholders this morning, which Microsoft answered with a statement of its own.

"While of course there can be no assurance of a future transaction, we will be prepared to enter into discussions immediately after Yahoo!'s shareholder meeting if a new board is elected," Microsoft said.

Such a transaction could include the purchase of just Yahoo's Internet search business -- a prospect Microsoft has had on the table since at least May 18 -- or a full acquisition. Since Jan. 31, Microsoft has been trying to buy Yahoo to strengthen its position against Internet search and advertising leader Google.

Update: Both Icahn's letter and Microsoft's statement describe the frustration Ballmer has felt toward Yahoo and its management. From the Microsoft statement:

"Despite working since January 31 of this year, as well as in the early part of last year, we have never been able to reach an agreement in a timely way on acceptable terms with the current management and Board of Directors at Yahoo!. We have concluded that we cannot reach an agreement with them."

Icahn provided more detail, based on his discussions with Ballmer and other Microsoft execs, including Kevin Johnson:

"Steve made it abundantly clear that, due to his experiences with Yahoo! during the past several months, he cannot negotiate any transaction with the current board. His logic is simple. If and when a transaction was consummated, Microsoft would be guaranteeing a great deal of capital at closing. However, a transaction could take at least nine months and perhaps longer to obtain regulatory clearance in the U.S., Europe, and elsewhere. During that period, if the current board and management team of Yahoo! mismanage the company (and their recent track record is far from reassuring), Microsoft would be putting its money at risk and a great deal could be lost. ... Microsoft perceives this risk may be quite high with the current board and management in place."

While being careful to note that he does not speak for Yahoo (yet) and that no transaction can be guaranteed, Icahn is clearly turning up the volume on his campaign to oust Yahoo's board by dangling a Microsoft deal in front of investors. He began his attack on Yahoo's current board in mid-May, about two weeks after Microsoft withdrew its first proposal to buy Yahoo.

"While there can be no assurance of a future transaction, as many of you know, I have negotiated successfully a large number of transactions over the past years. If and when elected, I strongly believe that in very short order the new board would, subject to its fiduciary duties, be presenting to shareholders either a purchase offer for the whole company or a very attractive offer to purchase 'Search' with large guarantees."

Microsoft offered Yahoo $1 billion for its search business in a deal that would have included an $8 billion investment in the company and a long-term advertising partnership, including "a three-year guarantee of higher monetization than Yahoo!'s Panama paid search system currently provides," according to a letter Johnson issued June 18 explaining the search proposal. This was after Yahoo and Google announced a search-advertising pact of their own.

Icahn noted that his recent conversations with Ballmer did not include price or specifics on whether a search buy or a full acquisition makes the most sense. He also expressed his intent to "expeditiously" replace Jerry Yang as CEO of Yahoo on election of a new board.

Other coverage of note:

-- Yahoo reportedly talked over the holiday weekend with Time Warner about a deal with AOL, according to The Times Online. The story says Yang is scrambling to secure an alternative deal for Yahoo to present at the company's shareholder meeting.

-- More pressing even than the shareholder meeting is Yahoo's second quarter report on July 22, after the market closes, says Kara Swisher. "It is highly unlikely Yahoo leadership will blow the quarter. Or -- more to the point -- they simply cannot, especially given all the unending turmoil that has engulfed the company," Swisher wrote. "And, in fact, top execs have been working to avoid that possibility, sources inside the company said, including using well-known tricks of the trade, such as striking more short-term display deals at lower CPMs."

Update: Shortly after the opening of trading, Microsoft's shares were up about 28 cents, or just over 1 percent, to $26.26. Yahoo's had gained $2.24, more than 10 percent, to $23.59.

Update: See this post for Yahoo's response.

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Posted by Joshua

10:45 AM, Jul 07, 2008

Sell Yahoo! to Microsoft!!! Let Microsoft brings Yahoo! to Greater Seattle area and create thousands of new jobs!!!

Posted by Independent_Center

12:54 PM, Jul 07, 2008

Microsoft needs to stop with it's acquisition of Yahoo's search functions... All they will likely do is take what they want from Yahoo, gut the company and lay a lot of people off, and lose a lot of Yahoo's current customers because those customers didn't join HOTMAIL and OFFICE LIVE - they wanted Yahoo's services and that is what they signed on for.

Looks like Icahn joined Yahoo to profit-take and run, not to advance the company, and he needs to either leave or accept that Yahoo is not going to say how high when he says 'Jump.' Jerry Yang created Yahoo and should not be forced out because of Icahn's greed and MS's shortsightedness in not seeing the way that online search would go.

If MS takes over Yahoo, they will lose me and a lot of other Yahoo users who signed up for Yahoo for the services they provide - and I don't use Hotmail because I don't like it or have a use for it. Same thing for Office Live. IF they turn Yahoo mail and it's other services into an extension of those two programs, I have no more reason to use Yahoo. I'm not alone.

So - Mr. Icahn - go away and let Yahoo run it's own business. I know - maybe you can buy what's left of the (now ex) Seattle Sonics after Clay Bennett destroys them completely in 2 years - you should get along nicely too - you each have the same amount of integrity! (Thieves, con men, liars, and profit hustlers!)

Posted by Eddie

11:29 PM, Jul 10, 2008

What is so valuable about Yahoo to Microsoft that they couldn't develop in house with their presumably talented software developers?

This is sort of like admitting that your in house staff don't have what it takes to beat the competition.

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