Microsoft Aligns with Icahn for Yahoo Takeover

by , 10:35 AM EDT, July 8th, 2008

Microsoft is ready to revive its plan to purchase Yahoo!, but only after the Internet search company replaces its board of directors, and that's exactly what billionaire investor Carl Icahn intends to do. The Redmond-based company has been discussing its interest in Yahoo! with Mr. Icahn while he continues to move forward with his plan to oust the current Yahoo! board in a proxy battle.

Mr. Icahn has already set the wheels in motion for his bid to replace the current board of directors with his hand picked pro-Microsoft board at Yahoo!'s annual shareholder meeting scheduled for August 1. If successful, he plans to ask Microsoft to purchase all or part of the company.

Yahoo!'s board of directors isn't pleased with the prospect of being forced out and seeing the company handed over to Microsoft. "We feel very strongly that this would not lead to an outcome that would be in the best interests of Yahoo!'s stockholders," the board said in a statement. "If Microsoft and Mr. Ballmer really want to purchase Yahoo!, we again invite them to make a proposal immediately."

Microsoft isn't interested in hearing what Yahoo! has to say any more and added that "after the shareholder election Microsoft would be interested in discussing with a new board a major transaction with Yahoo!, such as either a transaction to purchase the 'Search' function with large financial guarantees or, in the alternative, purchasing the whole company."

Microsoft's new stance means that not only is the company not interested in talking with Yahoo!'s current board, but that it also focused on purchasing only the most lucrative part of the company: Yahoo!'s Internet search advertising business. Since Mr. Icahn seems driven to force a deal, the most likely outcome would be an agreement that gives Microsoft exactly what it wants while leaving the rest of Yahoo! behind.

The Windows Vista maker originally presented Yahoo! with an unsolicited buyout offer at the beginning of the year to help shore up its own position against Google in the Internet search advertising market. Yahoo rejected the offer, but did enter into negotiations with Microsoft.

Microsoft later walked away from the negotiations after deciding that Yahoo! wasn't worth the asking price.

Mr. Icahn claimed that Yahoo! botched the deal and began buying company stock in an effort to become a major share holder and to launch his hostile takeover attempt.

"Now Mr. Ballmer and Mr. Icahn have teamed up in an apparent effort to force Yahoo! into selling to Microsoft its Search business at a price to be determined in a future 'negotiation' between Mr. Icahn's directors and Microsoft's management," Yahoo!'s board said. "We feel very strongly that this would not lead to an outcome that would be in the best interests of Yahoo!'s stockholders."

Microsoft, however, seems to have a more positive outlook on the potential deal. "We... welcome interest by Mr. Icahn in pursuing this and other discussions," the company said. "While of course there can be no assurance of a future transaction, we will be prepared to enter into discussions immediately after Yahoo!'s shareholder meeting if a new board is elected."