Microsoft proposes alternative deal to Yahoo

By Reuters  |  Posted 2008-05-18 Email Print this article Print
 
 
 
 
 
 
 

Microsoft emphasized it was not proposing to make a new bid to buy all of Yahoo "but reserves the right to reconsider that alternative" depending on discussions with Yahoo, shareholders of Yahoo or Microsoft, or other third parties.

SEATTLE (Reuters) - Microsoft Corp said on Sunday it has proposed an alternative deal to Yahoo Inc, rather than a full acquisition, in a move that could save the web pioneer from fighting a proxy battle with financier Carl Icahn.

"Microsoft is considering and has raised with Yahoo an alternative that would involve a transaction with Yahoo but not an acquisition of all of Yahoo," the company said in a statement without clarifying what that alternative might be.

Microsoft emphasized it was not proposing to make a new bid to buy all of Yahoo "but reserves the right to reconsider that alternative" depending on discussions with Yahoo, shareholders of Yahoo or Microsoft, or other third parties.

A source familiar with Microsoft's thinking said Yahoo was responsive to Microsoft's latest proposal but emphasized that discussions between the two companies may not result in a deal.

The New York Times reported that Microsoft and Yahoo may form a partnership or joint venture for search-related advertising to take on Google Inc, which dominates the search market with a share significantly larger than a combined Yahoo and Microsoft.

For its part, Yahoo continues to talk with Google Inc about a search advertising partnership and a deal could come as early as this week, a source familiar with the talks said on Thursday.

The statement from Microsoft comes on the heels of a proxy campaign launched on Thursday by Icahn to replace Yahoo's board with directors who would reopen talks with Microsoft, saying Yahoo had acted irrationally in refusing the giant software company's $47.5 billion bid.

Microsoft walked away from its pursuit of Yahoo two weeks ago after three months of negotiations when Yahoo's board rejected Microsoft's sweetened offer of $33 a share, saying the company was worth at least $37 a share.

Meanwhile, Microsoft and Icahn have not held discussions about Yahoo, said another source close to the company. A spokesman for Yahoo declined to comment and Icahn could not be reached for comment.

Kim Caughey, a senior analyst at Fort Pitt Capital Group, said the market will probably send Yahoo shares higher while pushing down Microsoft shares when the market opens on Monday.

Caughey said a joint venture or minority investment with Yahoo could cause confusion about who was in charge.

"Microsoft walking away from Yahoo was a total head fake," said Caughey. "Microsoft is a terrible poker player if it thought people were going to believe that the deal was dead."

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