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Thursday, July 10, 2008

Microsoft Is Icahn’s Ally in Pursuit of Yahoo

Slashdot It! Carl C. Icahn, the activist investor, has a powerful new ally in his campaign to take control of Yahoo: Microsoft. In yet another twist in its five-month-old pursuit of Yahoo, Microsoft said Monday that it would be interested in negotiating a purchase of Yahoo’s search business or of the entire company, as long as Yahoo replaces its board. Mr. Icahn is mounting a proxy fight against Yahoo’s board, one built on the gamble that he can bring Microsoft back to the negotiating table. But without a commitment from Microsoft to complete a deal, let alone any discussion of price, it is unclear whether Microsoft’s announcement will be sufficient to persuade Yahoo shareholders to back Mr. Icahn at the company’s annual meeting on Aug. 1. Microsoft’s renewed interest in possibly buying all of Yahoo represents another acknowledgment that it badly needs Yahoo to compete with Google in Web advertising. But analysts said that for Microsoft, which this year had considered waging a proxy fight for control of Yahoo, backing Mr. Icahn also represents a shrewd strategy with little downside risk. “It is beautiful,” said Youssef Squali, an analyst with Jefferies & Company. “Icahn is doing the dirty work, and they don’t need to commit to anything until they feel that the board is ready to deal. They are letting the prey come to them instead of chasing it.” The new informal alliance between Mr. Icahn and Microsoft came together after a series of conversations between Mr. Icahn and Steven A. Ballmer, the Microsoft chief executive, during the last week, Mr. Icahn said in a letter to Yahoo shareholders. “Steve made it abundantly clear that, due to his experiences with Yahoo during the past several months, he cannot negotiate any transaction with the current board,” Mr. Icahn wrote. He later added: “However, Steve made it clear to me that if a new board were elected, he would be interested in discussing a major transaction with Yahoo,” like the purchase of the search unit or the whole company. In an apparently coordinated statement, Microsoft confirmed its interest in negotiating with a new board, but said it was not ready to disclose publicly the specific terms of any transaction. In an interview, Mr. Icahn said he understood Microsoft’s interest in replacing the board. “If you’re going to put up $45 billion, you certainly can’t be blamed for wanting to have faith in the stewardship of the company, especially if you have to wait a year to buy it,” he said, referring to the time it would take to get regulatory approval for the deal. “I believe Ballmer wants to buy it one way or the other.” For its part, Yahoo sought to cast doubt on Microsoft’s commitment to acquire the company and suggested it would be risky for shareholders to endorse Mr. Icahn’s slate of directors without such a commitment. “If Microsoft and Mr. Ballmer really want to purchase Yahoo, we again invite them to make a proposal immediately,” Yahoo said in a statement. “And if Mr. Icahn has an actual plan for Yahoo beyond hoping that Microsoft might actually consummate a deal which they have repeatedly walked away from, we would be very interested in hearing it.” Microsoft withdrew its offer to buy Yahoo outright on May 3 after Yahoo executives said they would be willing to sell the company for $37 a share. Microsoft had offered $33 a share, or about $47.5 billion. Two weeks later, Microsoft said it was interested in buying Yahoo’s search business, but the company has said time and again that it was no longer interested in buying all of Yahoo, not even for $33 a share. Yahoo has said that selling its search business alone would not be in the best interest of shareholders. On June 12, it said talks with Microsoft had ended, and it signed an alternative search advertising partnership with its No. 1 rival, Google. Yahoo could withdraw from the partnership if it pays a breakup fee. It is too early to handicap the outcome of Mr. Icahn’s proxy fight, as most major Yahoo shareholders have yet to say whether they will support him. Several large shareholders have said recently that they favored a deal with Microsoft, and they have voiced their anger at Yahoo’s management for its inability to consummate a merger. Yet many have been unwilling publicly to endorse Mr. Icahn, who, they fear, lacks a specific plan, other than hoping to sell the company to Microsoft. Via NYT Get Daily Updates via Email Protect your computer with Windows Onecare

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