Yahoo shares up on hope of talks with MS, Google deal

Yahoo Inc investors latched on to hopes the company would resume talks with Microsoft Corp or soon forge a deal with Google Inc, sending shares up 6 percent on Tuesday.

Investors are anticipating that Yahoo may give in to pressure from its largest shareholders to reconsider Microsoft's $47.5 billion offer, and noted conciliatory comments from its chief executive, Jerry Yang.

Alternately, Yahoo could strike a pact to outsource some of its search listings to Google to boost its performance. The two are hammering out the details of a potential deal and sharing their plans with antitrust regulators, said a person close to Google.

"There are definitely big accounts stepping in and buying Yahoo on the assumption they will get back to the table," said RBC Capital Markets analyst Ross Sandler. "If they don't, you have one other out, which is the Google outsourcing (deal)."


Yahoo Chief Executive Jerry Yang told media on Monday that he had "mixed feelings" about events over the weekend, when talks broke down, and was still open to negotiations. "If they have anything new to say, we would be open," he said. "I am more than willing to listen."

Microsoft had sweetened its offer to $33 per share, but walked away from talks on Saturday after Yang held out for a price of $37 per share.

Yang's softer stance came as two of Yahoo's largest shareholders told The New York Times they would have been happy with a deal at $34 per share.

"I am extremely angry at Jerry Yang and at the so-called independent board," Gordon Crawford, portfolio manager for Capital Research Global Investors, the largest Yahoo shareholder with some 16 percent of stock, told the newspaper.

Crawford's sway over media companies is legend. In 2002, he mounted a campaign to force the resignation of AOL Time Warner Chairman Steve Case, the architect behind one of the worst corporate mergers of its era. Case resigned in January 2003.

Bill Miller of Legg Mason Inc, which owns about 7 percent of Yahoo shares, said he was disappointed the two companies didn't reach a deal and was surprised Microsoft walked away.

Deadline for proxy fight

In an apparent effort to contain a shareholder revolt, Yahoo on Monday set its annual meeting for July 3. It said May 15 is the deadline to nominate board candidates, giving dissident investors just over a week to launch a proxy fight.

"If you lose the goodwill of some of the largest shareholders, which seems to have happened, we would expect a bloodless coup with Jerry being invited to step aside," said Sanford C. Bernstein analyst Jeffrey Lindsay.

Yahoo shares rose $1.49 cents to $25.86, partially recovering from a 15 percent drop on Monday. Microsoft rose 1.6 percent to $29.54. Despite the renewed optimism, a Microsoft executive cast doubt on the idea that talks could resume.

Jean-Philippe Courtois, president of Microsoft International, told media in London that the company has moved on from Yahoo and will focus on its own strategy to be a leader in Internet services.

Asked if that was the end with Yahoo, he replied, "Absolutely, that's the end of the story. We are moving on because our strategy is very clear."

Google deal

Microsoft courted Yahoo to capitalize on the rapidly growing market for Internet advertising, one that has long been served by Yahoo's search, e-mail and Web communities.

It is also trying to fend off the expansion of Google, which has made inroads into Microsoft's home turf with a portfolio of Web based-applications, e-mail and messaging.

A Google deal would boost Yahoo's operating performance in the near term, but runs the risk of regulatory scrutiny over an alliance between the Internet's top two players.

"If it turns out that Google was just being used to thwart Microsoft, I think investor reaction will be very negative," Lindsay said.

In a letter to Yang over the weekend, Microsoft CEO Steve Ballmer warned that any deal between Yahoo and Google would be difficult to unravel and would preclude an agreement with Microsoft.

Yang told media the company would take care to structure any such efforts to "preserve as much (as possible) long-term flexibility for Yahoo, both operationally and strategically."

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Google gains from Yahoo-Microsoft takeover drama

Microsoft's unwanted courtship of Yahoo is spinning into a dramatic soap opera that analysts say is playing into the hands of Internet search king Google.

While the US software giant says Google's dominance online is the reason it is eager to buy Yahoo, the California firm's efforts to stave off Microsoft leave Google free to concentrate on strengthening its grip on the market.

"Our big take-away now is that as the situation gets more muddled with more participants and more uncertainty, it seems to solidify Google's standing in the industry," Cantor Fitzgerald analyst Derek Brown told AFP.

A series of Yahoo maneuvers aimed at rebuffing Microsoft were announced or leaked this week, while the software giant may also be upping its game.

On Thursday a report surfaced that Microsoft is exploring an alliance with News Corporation owned by Rupert Murdoch.

Terms of a possible deal include News Corp. contributing cash to help Microsoft buy Yahoo, and then adding its popular social networking website MySpace to the resulting Internet entity.

Such an alliance would be an abrupt change of sides for News Corp., which was among possible "white knights" that Yahoo reached out to for salvation after Microsoft came on strong with a 44.6-billion-dollar offer February 1.

News Corp. also has a long-term deal with Google to host online advertising at MySpace.

Yahoo, meanwhile, is apparently seeking help from longtime rival Google, whose dominance in Internet advertising is among the reasons Yahoo's share of the market have been eroding.

Yahoo announced Wednesday it will launch a limited, two-week test of Google's AdSense for Search service, which essentially means it will be checking how much better Google is at generating cash from online advertising.

Analysts agree that a significant alliance between Google and Yahoo would be squashed by US regulators because the companies combined would control some 90 percent of the online search ad market.

"The company that would clearly want to come to the rescue is Google but they know the regulators would just go nuclear if they did that," Gartner analyst Van Baker said.

Unofficial word has spread that Yahoo is also nearing a deal with Time Warner's America Online to combine the two struggling companies' Internet operations and thwart Microsoft's takeover effort.

Time Warner would reportedly merge AOL into Yahoo and pay for a 20 percent ownership of the combined company.

Yahoo would reportedly use the cash to buy back shares from some of the very stockholders Microsoft is threatening to woo in an effort to have Yahoo's board of directors ousted and replaced with people amenable to the takeover.

Silicon Valley analyst Rob Enderle agrees that Google benefits while its two closest rivals duel but says that Google might have reason to worry.

Microsoft has a 1.6 percent stake in fast-growing social networking website Facebook. A tie-up with MySpace, while a bit awkward, would give Microsoft footholds in two top social networking properties.

If Yahoo makes an alliance with AOL and then is bought by Microsoft, the combined resources span a formidable swath of hot websites.

"Microsoft and Yahoo might not be a threat to Google, but you throw Murdoch in the mix and that is a credible threat," Enderle said. "The chance Microsoft could pull it off could be what keeps Google up at night. It's scary."

Microsoft is betting that by combining with Yahoo, it can gain ground on Google.

"I think Yahoo genuinely doesn't want to merge with Microsoft," Baker said.

"They think it will be bad for the employees and bad for the industry, and I don't disagree with that."

Yahoo on Monday rejected a three-week deadline from Microsoft to accept the takeover but said it is open to a sweetened bid from the software giant or another bidder.

"I think this is inevitable," Baker said of a Microsoft takeover of Yahoo.

"I'm just very concerned Microsoft will screw it up and we will end up with Google controlling 90 percent of the ad business anyway and that Yahoo culture is going to evaporate."

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