Yahoo Tells Lawmakers Microsoft Seeks Fire Sale

By Reuters -  |  Posted 2008-07-15

WASHINGTON (Reuters) - A Yahoo Inc executive accused Microsoft Corp of teaming up with activist investor Carl Icahn to force a "fire sale" price for Yahoo's search business.

Yahoo General Counsel Michael Callahan, in testimony Tuesday to a U.S. congressional committee, defended his company's advertising partnership with Google Inc and said Yahoo would not be sold off piecemeal on terms that disadvantage Yahoo stockholders.

"Microsoft... has turned to activist shareholder Carl Icahn, in the apparent hope that this will force a fire sale of Yahoo's core strategic search business," Callahan said at a hearing before the Senate Judiciary Committee's antitrust subcommittee.

Icahn is leading a proxy campaign to dump Yahoo's current management and board at the August shareholder meeting.

Google, with more than 60 percent of the Web search market, and Yahoo, with 16.6 percent, announced a deal on June 12 that would allow Yahoo to place Google advertisements on its site and collect the revenue.

The Yahoo-Google partnership was widely seen as an effort by Yahoo to fend off Microsoft's on-again, off-again efforts to buy all or part of Yahoo. Microsoft has criticized the partnership as an anticompetitive threat to advertisers and consumer privacy.

Microsoft's most recent offer to acquire Yahoo's search business was rejected Saturday evening by Yahoo.

Yahoo shares were down 3.7 percent to $21.73 in Tuesday afternoon trading on the Nasdaq. Microsoft shares were up 4.3 percent to $26.22, Google shares were down 1.7 percent to $512.70.

Google and Yahoo have refrained from consummating the revenue-sharing deal while they wait for an opinion from antitrust authorities at the Justice Department.

At Tuesday's hearing, some lawmakers raised antitrust and privacy concerns but did not say whether they would be support or oppose the deal.

"The Google agreement with Yahoo may relate only to text advertisements, but if it stifles competition in this market, it will quickly spill into emerging online ad markets such as delivery to mobile devices," said Democratic Sen. Patrick Leahy of Vermont, the chairman of the Judiciary Committee.

The deal has raised antitrust concerns since Google by far dominates search advertising while Yahoo is a weak number two. Microsoft is in third place.

Testifying shortly after Callahan, Microsoft General Counsel Brad Smith pressed the antitrust issue. He told the committee the deal would reduce Yahoo's incentive to compete against Google, would push Yahoo's search advertising platform into a downward spiral and establish an illegal price floor.

"When it comes to the issues before this subcommittee, Google should not be allowed to achieve an outcome through an agreement that it would not be permitted to achieve otherwise," said Smith in his written testimony.

Callahan told the lawmakers those worries were misplaced. He said Yahoo would remain in the search business and "do everything we can to grow our share and also strengthen our competitiveness in search and search advertising."

(Reporting by Diane Bartz; Editing by Tim Dobbyn and Derek Caney)