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Summary:

It is a sad commentary on the state of affairs in Silicon Valley when Carl Icahn, a known corporate raider from the go-go 80s, is used as a lightening rod to bring two of technology’s major players, Yahoo and Microsoft, to the table to strike some […]

It is a sad commentary on the state of affairs in Silicon Valley when Carl Icahn, a known corporate raider from the go-go 80s, is used as a lightening rod to bring two of technology’s major players, Yahoo and Microsoft, to the table to strike some sort of a deal. And there seems to be some sort of a transaction in the works. And that’s not necessarily a good idea.

Microsoft is considering and has raised with Yahoo! an alternative that would involve a transaction with Yahoo! but not an acquisition of all of 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 depending on future developments and discussions that may take place with Yahoo! or discussions with shareholders of Yahoo! or Microsoft or with other third parties. There of course can be no assurance that any transaction will result from these discussions.

As you might remember, Microsoft made a $31 a share bid for Yahoo, got spurned, and then raised the bid to $34 a share, only to see it rejected it again. At that point Microsoft walked. Many Yahoo shareholders weren’t cracking smiles when that happened, prompting Icahn to step in with his idea of a board. Ichan’s move to put a new board in isn’t all that bad: Yahoo needs to clean house, as I had said a long time before holier-than-thou Carl showed up.

The New York Times reports that there were talks that “center on a partnership or joint venture for search-related advertising” as the two companies find a way to beat Google. Kara Swisher says that Microsoft “wants most of all to grab Yahoo’s search ad business to become a credible No. 2 in the important sector.”

This is Microsoft, once proud company that would have gone to any length to win, and it is going to settle for second spot. What does it really say about Microsoft? Never mind, it is a rhetorical question.

The combination of Yahoo and Microsoft in the search business is not going to be a winning combination. Essentially Microsoft is in the market to buy eyeballs – ones that have been declining in numbers. Both Yahoo and Microsoft continue to lose market share to Google in the search market.

Just take a look at the April 2008 data for US searches from Hitwise. According to comScore data Google now outranks both Yahoo and Microsoft. So building a search-advertising business makes no sense. (Read Kevin Johnson, Microsoft’s President of Platforms & Services Division memo about Microsoft’s online effort.)

For Yahoo it might not be a bad idea, since the company doesn’t solely rely on search/search-based advertising to make money. Instead, a substantial chunk of its revenues come from (what I like to call) produced pages, email and other content related efforts. If Microsoft wants to pay up for that, that I guess is palatable defeat for Yang & Co.

  1. Am I the only one who proposes Microsoft “hired” Ichan to do this. Why would Ichan put up a billion dollars on a big questionable company as Yahoo! unless MS whispered to him they would buy Yahoo! Carl’s payday comes on sale.

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  2. @ Rick, You are not alone. I have been thinking about it, and well Carl is known to *walk* away smelling of “bucks.”

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  3. Surely, the stockholders must want the door to remain open. It will take significant change at Yahoo to get it moving in the right direction again. If this change weren’t so personal for Yang, he could take the deal and be off vacationing on a private island, enjoying his money and dictating his book.

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  4. OM – while plausible – who in their right mind wants Icahn for a friend (or even arm-length partner). The man writes his own rules of engagement – in fact what is more plausible – MSFT walked away because they sniffed out Icahn coming the way of Yahoo. Think about that one GURU.

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  5. Microsoft/Ichan theory:

    1) MS has already returned to the table 5 days after saying they would move on and go another direction.

    2) MS includes the following statement in the new non-merger talks:

    “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 depending on future developments and discussions that may take place with Yahoo or discussions with shareholders of Yahoo or Microsoft or with other third parties,” the company said in its statement.”

    3) Ichan sinks over a billion dollars into Yahoo!, a company that has tremendous risk associated with it without MS. Ichan’s stock purchases without insider knowledge that MS will buy Yahoo! is highly questionable.

    IMO, this is Microsoft’s easiest and cheapest way to wage a hostile takeover. “Hire” Ichan.

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  6. http://biz.yahoo.com/rb/080519/yahoo_microsoft.html?.v=6

    “The software giant’s move to court Yahoo was likely to prompt the Icahn to press Yahoo to further pursue an alliance with Google, a person familiar with the billionaire investor’s thinking told Reuters on Sunday.”

    That’s not what you would call a “MSFT put Icahn upto mischief” view. Not debating here – just counterpoints of people who have watched the Icahn raids over the years!

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  7. [...] appears the Yahoo deal is not yet done. Om Malik seems to believe that Carl Icahn has a plan, but that it will be difficult for the two together to assault [...]

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  8. [...] Microsoft, Yahoo Back On, Or Not [...]

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  9. John Thacker Monday, May 19, 2008

    Why would Ichan put up a billion dollars on a big questionable company as Yahoo! unless MS whispered to him they would buy Yahoo!

    Huh? This theory makes no sense. MS made the offer to Yahoo before Icahn started buying. He bought once the Yahoo board declined the offer. It doesn’t take any sort of special knowledge or collusion to decide that that the rest of the Yahoo shareholders might want to take a 72% premium over their shares that was MS’s original offer. A proxy fight in that sort of situation, when Yahoo’s board has turned down such a massive offer, is a trivially easy thing to think of without any involvement on MS’s part. What it does take is a some knowledge and experience in mounting proxy fights, a willingness to do so, and a lot of cash to sink into buying enough to wage one effectively.

    He doesn’t need MSFT paying him directly to make a killing on this. All he needs is for shares that he bought in the twenties, along with the rest of Yahoo, for the $33/share that has already been offered. YHOO is trading below $28 *right now*, even with lots of speculation that he’ll succeed.

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  10. [...] Read the rest of this post Print all_things_di220:http://voices.allthingsd.com/20080520/microsoft-yahoo-back-on-%e2%80%94-or-not/ Sphere Comment Tagged: Carl Icahn, GigaOm, Om Malik, Voices, Yahoo, Microsoft | permalink [...]

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