Yahoo, MS battle continues

By Candice Jones, ITWeb online telecoms editor

Johannesburg, 15 Jul 2008

Internet company Yahoo has rejected a joint proposal from Microsoft and Yahoo investor Carl Icahn for a complex restructuring of the business.

The restructuring would include the acquisition of Yahoo's search business by Microsoft. Instead, it suggests Microsoft should buy out the company in its entirety.

Two weeks ago, Microsoft CEO Steve Ballmer and Icahn teamed up in an apparent effort to force Yahoo into selling its search business at a price to be determined in a future "negotiation" between Icahn's chosen directors and Microsoft's management. The pair reportedly gave Yahoo 24 hours to respond.

Yahoo chairman Roy Bostock says: "This odd and opportunistic alliance of Microsoft and Carl Icahn has anything but the interests of Yahoo's stockholders in mind. Clearly, Microsoft, having failed to advance in search, is aligning with the short-term objectives of Icahn to coerce Yahoo into selling its core strategic search assets on terms that are highly advantageous to Microsoft, but disadvantageous to Yahoo stockholders."

Microsoft has thrown the next punch in the ongoing battle between the two, saying Yahoo's statement was inaccurate. "Microsoft's proposal did not include changes to Yahoo's governance," the company said in a statement.

Try again

Microsoft first offered to buy Yahoo with a bid of $31 a share - a value of $44 billion - at the end of January. However, the Yahoo board publicly rejected Microsoft's offer. Bostock and CEO Jerry Yang said Microsoft's offer did not meet the actual value of the company.

The companies have been at loggerheads since, and Icahn has noted a vote of no confidence with respect to the board. "It is clear to me that the board of directors of Yahoo has acted irrationally and lost the faith of shareholders and Microsoft."

Icahn bought 59 million shares and share-equivalents of the Internet company and formed a 10-person slate to stand for election against the current board. In addition, Icahn approached the Federal Trade Commission to gain anti-trust clearance for a Microsoft merger.

Subsequently, Microsoft threatened Yahoo with the possibility of a hostile takeover, if the Internet company did not come to the negotiating table. Ballmer warned it would pursue a proxy contest aimed at electing an alternative slate of directors for Yahoo. However, Microsoft did not follow through on those threats.

Yahoo's latest statement suggests Microsoft put in for a transaction to acquire the whole company, which "would be much more straightforward and involve far less risk than the new proposal or any similar alternative". The board believes a whole company transaction could be negotiated and executed prior to 1 August, its annual meeting.