Microsoft Says Willing to Restart Yahoo Talks

 
 
By Reuters -  |  Posted 2008-07-07
 
 
 

NEW YORK (Reuters) - Microsoft Corp on Monday said it would be willing to reopen talks to buy all or part of Yahoo Inc -- but only if a new Yahoo board is elected, a major boost for investor Carl Icahn's board slate.

Microsoft, which broke off months-long talks in early May to buy the Internet company for $47.5 billion, said it would resume discussions immediately if a new board were elected at Yahoo's August 1 stockholder meeting.

The Microsoft statement came after Icahn, the billionaire financier who holds over 4 percent of Yahoo, issued an open letter saying he had "spoken frequently" to Microsoft CEO Steve Ballmer over the last week. Previously, the two had not spoken.

"This is the first concrete confirmation we have that Microsoft is willing to come back to the table," said UBS analyst Ben Schachter. "It gives Icahn a much stronger hand going into the shareholder vote. It significantly raises his profile and his likelihood for success."

Ballmer told Icahn that a big impediment to any Yahoo deal was his concern that the current board could "mismanage" the company while the deal awaits regulatory approval, a process that could take nine months or more, according to Icahn.

In an interview, Icahn argued that his proposed dissident board slate would make Microsoft feel more secure in risking a large sum of capital to complete the deal during the regulatory approval process.

"You don't have to be Sherlock Holmes to realize there is no great comfort zone between the current Yahoo board and Microsoft," said Icahn. "During this waiting period for regulatory approval, any acquirer -- not just Microsoft -- would want a steward they would feel comfortable with."

In response, Yahoo issued a statement saying it continues to be willing to reopen talks with Microsoft, but "we feel strongly" that any deal negotiated between Icahn and Microsoft "would not lead to an outcome that would be in the best interests of Yahoo stockholders."

"If Microsoft and Mr. Ballmer really want to purchase Yahoo, we again invite them to make a proposal immediately," Yahoo said.

Icahn also said he is actively interviewing replacements for Yahoo CEO Jerry Yang and its management team. "I am moving towards getting a potential new management team for Yahoo including a new CEO," he said in a phone interview.

The long-awaited signals that the Microsoft-Yahoo talks could be revived sent Yahoo stock up more than 10 percent in Monday trade.

In early afternoon trading, Yahoo stock was up $2.23, or 10.4 percent, to $23.58 on Nasdaq. Microsoft shares were down 39 cents, or 1.5 percent, at $25.59.

Sanford C. Bernstein senior Internet analyst Jeffrey Lindsay said that if Microsoft is serious about resuming talks, "there is rationale for voting for the Icahn slate and essentially ousting the current Yahoo board and probably the management too.

"At the end of the day, you would have to expect that the big institutional shareholders would go for a deal with Microsoft," Lindsay added.

Mithras Capital partner Mark Nelson, whose firm controls 1.7 million Yahoo shares, said management change at Yahoo "has to happen."

"They've had plenty of time to right the ship," said Nelson. "The record over the past two or three years speaks for itself. They blew it and new management is needed to better exploit all the assets there."

Talks between Yahoo and Microsoft broke down in early May. Microsoft originally offered $31 per share and raised it to $33, but Yahoo demanded $37 per share.

After talks collapsed, Icahn amassed a stake in Yahoo and launched a proxy war to replace the Yahoo board and management, claiming they "botched" the Microsoft talks.

In his letter, Icahn said: "Steve made it clear to me that if a new board were elected, he would be interested in discussing a major transaction with Yahoo," including purchasing either its "search" function with large financial guarantees, or an outright purchase of Yahoo, said Icahn in the letter.

Microsoft said it would be premature to discuss details, such as the price it might offer for Yahoo.

Icahn said he would immediately move to replace Yang if his board slate were elected at the August meeting.

(Additional reporting by Robert MacMillan and Yinka Adegoke in New York, Dai Wakabayashi in Seattle, and Eric Auchard and Anupreeta Das in San Francisco)

(Reporting by Dane Hamilton; editing by Gunna Dickson and Derek Caney)