Archive for May 18th, 2008

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MicrohooJust when you thought it was safe to go back in the water (or at least use Flickr without fear that Microsoft would start requiring WGA validation), Microsoft released a statement saying it’s not quite done with this whole Yahoo! thing yet. No, the company isn’t putting another bid on the table for an outright acquisition of Yahoo!, but Microsoft isn’t ruling that out either.

In a nutshell, Microsoft wants to make it clear that the company plans to expand its advertising and service businesses. And to that end, Microsoft has asked proposed some sort of an arrangement or partnership with Yahoo! Or maybe Microsoft wants to purchase some, but not all of the search portal’s properties. The statement doesn’t really make it clear what Microsoft’s after at this point.

A number of Yahoo! shareholders have expressed their disappointment with the way the Microsoft negotiations were handled (and the subsequent drop in stock price). So we could certainly see why Yahoo!’s leadership might be interested in some sort of a deal which could provide value for both companies, and more importantly keep shareholders from demanding Jerry Yang’s head on a platter.

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The Associated Press reports that speaks between Microsoft Corp. (NASDAQ: MSFT) and Yahoo (NASDAQ: YHOO) may be back on. In a statement Sunday, Microsoft states it is considering a different kind of deal with Yahoo. “Microsoft is not proposing to make a new bid to acquire all of Yahoo at this time, but reserves the right to reconsider that alternative.”

This news will come as good news to Carl Icahn who launched an effort to oust Yahoo’s board. I think he is an aggressive representative of the wave of institutional investors who would like nothing more than to make a swift buck on their Yahoo shares. Those investors were sorely disappointed that Microsoft and Yahoo could not come to terms on a deal a few weeks ago.

However, the current talks seem quite vague at this point. Yet they could be Yahoo’s direct response to Icahn who, according to the Wall Street Journal, told Yahoo’s board it could quickly quell Icahn’s shareholder revolt by renewing negotiations with Microsoft — but Microsoft warned that it’s possible no deal will be struck. So we wait…

Update. The New York Times reports that Microsoft is proposing a search-engine marketing alliance with Yahoo to help Microsoft gain share against Google Inc. (NASDAQ: GOOG). Yahoo could announce a formal agreement on a partnership with Google this week. A Yahoo-Google partnership, which is prone to face antitrust scrutiny, could make Yahoo a less desirable partner or takeover candidate for Microsoft.

Peter Cohan is President of Peter S. Cohan & Associates. He also instructs management at Babson College and edits The Cohan Letter. He has no financial interest in the securities mentioned.

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