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6/12/2008
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Yahoo Says Microsoft Talks Over, Google Deal Looms

The breakdown of talks between Microsoft and Yahoo has cleared the way for Yahoo to pursue a search alliance with Google.

Shares of Web portal Yahoo were off more than 13% in late afternoon trading Thursday after the company announced that talks aimed at giving Microsoft any sort of equity stake in the company have ended.

"Discussions with Microsoft regarding a potential transaction -- whether for an acquisition of all of Yahoo or a partial acquisition -- have concluded," Yahoo said in a statement.

Yahoo said its chairman, Roy Bostock, met with Microsoft executives on June 8. "At that meeting, Microsoft representatives stated unequivocally that Microsoft is not interested in pursuing an acquisition of all of Yahoo," the company said.

Yahoo also disclosed that it rejected an alternate proposal from Microsoft under which Microsoft would have acquired Yahoo's search unit. Yahoo's stock price slipped to $22.59 late Thursday in the wake of the disclosure.

Microsoft on Thursday responsed to Yahoo's announcement by confirming that it's no longer interested in acquiring the company, but insisting it's still open to a search deal. "This partnership would ensure healthy competition in the marketplace, providing greater choice and innovation for advertisers, publishers and consumers," Microsoft said in a statement.

The breakdown of talks between Microsoft and Yahoo has cleared the way for Yahoo to pursue a search alliance with Google. The two companies could announce a deal as early as this afternoon, according to the blog TechCrunch.

Outsourcing Yahoo's search operations to Google is one of the few areas on which company chairman Jerry Yang and corporate raider Carl Icahn agree -- sort of. Under Yang, Yahoo recently launched a trial search partnership with Google.

Icahn has said that if he gains control of Yahoo through a proxy fight, he would outsource the Web giant's search advertising operations to Google -- but only if he's unable to broker a merger with Microsoft.

Icahn, in a letter to Bostock last week, said that if Microsoft doesn't come back to the table he would "ask our new board to do a deal on search with Google."

But Icahn said he would make the move "only if it contains termination provisions that would in no way impede a subsequent acquisition by Microsoft," according to a copy of the letter that Icahn filed with the Securities and Exchange Commission.

Yahoo recently announced that it would test the viability of outsourcing some search operations to Google. The strategy would allow Yahoo to focus on its market leading Internet portal and display advertising operations, while ceding its lagging search business to its rival.

Icahn said his first priority, however, is to force Yahoo into reopening merger talks with Microsoft that broke off last month. Icahn said he would reopen exclusive merger negotiations with the software maker at $33 per share, which reflects Microsoft's most recent formal offer for Yahoo.

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