News

Microsoft Renews Talks With Yahoo

• By Kurt Mackie
• May 19, 2008

The company isn't trying to acquire Yahoo -- something that it abandoned earlier this month, although it "reserves the right to reconsider that alternative."

The Wall Street Journal, a past outlet for Microsoft-Yahoo negotiation leaks, has suggested that the talks are about Microsoft moving more into Google's turf. Microsoft wants to display its ads after a Yahoo Web search is performed, presumably meaning a deal over text ads.

The deal also could involve a purchase of Yahoo's search ad business itself, according to a blog by WSJ's Kara Swisher.

In particular, Microsoft may be aiming to buy Yahoo's Panama ad search platform, according to a blog by financial analyst Henry Blodget. However, the general idea of the renewed negotiations is to head off similar potential deals that Yahoo is negotiating with Google.

In a May 3 letter calling off the unsolicited bid for Yahoo, Microsoft's CEO Steve Ballmer highlighted the unease that Microsoft would have should Google and Yahoo establish a search ad deal.

"We regard with particular concern your apparent planning to respond to a 'hostile' bid by pursuing a new arrangement that would involve or lead to the outsourcing to Google of key paid Internet search terms offered by Yahoo today," Ballmer wrote.

Yahoo, in direct response to Microsoft's announcement over the weekend, released a generic statement indicating that "we remain open to pursuing any transaction which is in the best interest of our stockholders."

Yahoo currently faces a lawsuit from some of its shareholders who wanted Microsoft to acquire the company. Recently, investor Carl Icahn increased his ownership stake in Yahoo with the intention of replacing the current board, all 10 of whom are up for election on July 3. Icahn intends to obtain a board more favorable to Microsoft's bid.

Yahoo's Chairman of the Board, Roy Bostock, replied publicly to Icahn, saying that Microsoft had moved on from its bid and that Icahn doesn't understand "the facts about the Microsoft proposal and the diligence with which our board evaluated and responded to that proposal."

Microsoft hasn't been talking with Icahn about the matter, according to a Reuters story, citing an unnamed source.

Peter O'Kelly, research director of the Burton Group's data management strategies service sees Microsoft's renewed talks with Yahoo as possibly a way to "preclude a Yahoo/Google advertising partnership." However, he notes that the Microsoft's acquisition bid also could be revived, "since Microsoft in hostile acquisition mode is almost certainly a lot friendlier than Carl Icahn in 'vulture capitalist' mode," he stated in an e-mailed reply to questions.

Many wonder why Microsoft even needs Yahoo. O'Kelly stressed that ad search is where the money is currently. However, Microsoft is bit behind the curve there.

"Microsoft, given enough time (all other things being equal…) probably could go it alone, but it doesn't have the luxury of time, as Google is dominant and gaining momentum in this domain," O'Kelly wrote.