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6/26/2008
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Yahoo Says Google Deal Doesn't Rule Out Microsoft Sale

Emphasizing that the agreement does not rule out a Microsoft takeover will likely add to speculation that talks between the two companies are quietly ongoing.

In a move that's sure to further speculation over whether merger talks between Yahoo and Microsoft are really over, Yahoo emphasized in a letter to shareholders Wednesday that its agreement to outsource some search advertising to Google does not preclude a sale of the company to Redmond.

"Because the agreement can be terminated by either party upon a change of control, it would not preclude a transaction with Microsoft or any other potential acquirer in the future," Yahoo said in the note, a copy of which has been filed with the federal Securities and Exchange Commission.

Yahoo earlier this month agreed to a deal under which some queries entered into its sites will return search ads pulled from Google's network. Yahoo says it expects the deal will generate between $250 million and $450 million in additional revenue for the company in its first 12 months of implementation.

The fact that Yahoo is emphasizing that the agreement does not rule out a Microsoft takeover will likely add to speculation that talks between the two companies are quietly ongoing. The blog TechCrunch, which broke news of the Yahoo-Google search deal, earlier this week cited insiders at Microsoft and Yahoo in reporting that merger talks between the tech giants haven't died.

In its letter to shareholders, however, Yahoo also noted that Microsoft officials told the company on June 8 that they have no further interested in acquiring all of Yahoo.

Yahoo also said in the letter that it rejected an alternative proposal from Microsoft, which would have seen Redmond acquire Yahoo's search business for $1 billion, because it contained a number of onerous terms. Among other things, the deal would have given Microsoft veto rights over a future sale of Yahoo, the company reported.

"The Google agreement is far better than Microsoft's search-only hybrid proposal, that's why we moved forward with it," Yahoo said.

Some outsiders are continuing their push for a Microsoft-Yahoo marriage. Billionaire investor Carl Icahn is seeking to oust Yahoo's current board and replace it with a merger-friendly group. Icahn plans to present a slate of candidates comprising his rival board for election at Yahoo's annual meeting next month.

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