Activist investor Carl Icahn

Microsoft and Yahoo Seek Strategic Partnership

May 19, 2008 12:31 PM
by Anne Szustek
The two parties are in closed-door talks about ways they can merge their content to better compete against online leader Google.

30-Second Summary

Microsoft announced Sunday that it proposed an “alternative transaction” to Yahoo that would not involve full acquisition of the search engine, but rather would allow the two companies to partner in their paid search advertising to catch up to industry leader Google.

CNBC’s David Farber said Monday morning that both parties “are wary of revealing very much of anything.”

Two weeks earlier, the software company dropped its $44.6 billion hostile takeover bid that Yahoo rejected on the grounds that it would have undervalued the company. Microsoft said it dropped the bid because it would have taken too much time and was not worth the cost.

Activist investor Carl Icahn shot back at the Yahoo board of directors last week, threatening to take control of the company and sell it to Microsoft.

Sid Parakh, an analyst with Seattle-based investment advisory firm McAdams Wright Ragen, said that both Microsoft and Yahoo are trying to get “more revenues from search, and more in general from their online advertising. If there’s a way of doing it without Yahoo having to sell, and without Microsoft having to buy Yahoo, then that’s probably a good thing for both.”

But other tech industry analysts see the move as weakening Yahoo’s bargaining power and possibly company as a whole. Seth Gilbert wrote in Seeking Alpha that “distraction at Yahoo could spell opportunity” for Google and online advertising start-ups. A solid Microsoft takeover would do more good for both parties, writes Henry Blodget in Silicon Alley Insider, because “Joint ventures in technology almost never work: Too many cooks in kitchen” and “too many competing goals/incentives.”

Headline Link: ‘Microsoft Courting Yahoo with a New Offer’

Video: ‘Microsoft and Yahoo Update’

Background: Microsoft launches bid for Yahoo; considers hostile takeover; drops bid

Opinion & Analysis: A total takeover by Microsoft would benefit both companies


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