The offer may be back on the table if billionaire investor Carl Icahn is successful in his bid to overhaul Yahoo's board of directors at its August 1 shareholder meeting.

J. Nicholas Hoover, Senior Editor, InformationWeek Government

July 7, 2008

2 Min Read

Despite repeatedly saying it was no longer interested in purchasing all of Yahoo, Microsoft has decided to reopen that door anyway after long talks between Microsoft CEO Steve Ballmer and would-be Yahoo usurper and hedge fund manager Carl Icahn, according to documents released Monday.

In a statement, Microsoft said that it would be interested in pursuing Yahoo again if Icahn is successful in his bid to overhaul Yahoo's board of directors during the company's annual shareholder meeting on August 1. Icahn may have his work cut out for him: Reuters reported last months that major investors were unsure if they would support him.

Microsoft said it would be interested in acquiring Yahoo's search business or possibly the entire company, though it's too early to tell what kind of purchase cost such a bid would now require. Earlier this year, Microsoft proposed to acquire all of Yahoo for $31 per share -- which would translate to somewhere north of $40 billion in all -- and later offered $9 billion for Yahoo's search business alone.

After a breakdown in discussions that resulted in Microsoft backing away from a full deal and Yahoo rejecting Microsoft's search proposal, Yahoo and Google signed a non-exclusive search partnership deal worth an estimated $800 million annually to Yahoo. However, Microsoft contends its proposals would be better for Yahoos shareholders and the market as a whole, as Google already dominates the Web search and advertising markets without Yahoo's help.

In a letter of his own, Icahn is as straight forward as ever about his aims. After briefly noting the failure of the previous Microsoft deal, he points to Yahoo's recent executive departures, a failure of the current board to oust Yahoo co-founder and CEO Jerry Yang, Google's gains in search at Yahoo's expense, and Yahoo's board itself and their $10,000 weekly paychecks.

If and when Icahn overthrows the current board and gets a new slate of directors in, he intends to immediately replace Yang with a new CEO "with operating experience" and immediately start negotiations with Microsoft. "Jerry Yang and the current board of Yahoo! will not be able to "botch up" a negotiation with Microsoft again, simply because they will not have the opportunity," he writes. "It is time for a change."

For its part, reports over the weekend placed Yahoo in conversations for a possible takeover by Time Warner or merger with AOL.

Yahoo said in a statement Monday that it remains open to the possibility of discussions with Microsoft, but that the new tactics being weighed by Microsoft and Icahn "would not lead to an outcome in the best interests of Yahoo's stockholders. If Microsoft and Mr. Ballmer really want to purchase Yahoo, we again invite them to make a proposal immediately."

About the Author(s)

J. Nicholas Hoover

Senior Editor, InformationWeek Government

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