Microsoft draws up battle plan in bid to secure Yahoo swoop

Published on Saturday 12 July 2008 14:24

Software giant is still keen to buy online search engine, but without the unnecessary 'baggage'.

MICROSOFT'S chief executive Steve Ballmer and billionaire investor Carl Icahn are this weekend formalising a strategy to end months of stalled negotiations and finally propel beleaguered global internet search engine Yahoo in the direction of the software giant.

The two are resuming takeover negotiations that came to an abrupt halt last month after Yahoo claimed selling its search web advertising business was not in the best interests of shareholders. New Yorker Icahn, who holds a significant stake in Yahoo, disputes this stance and has formed an alliance with Microsoft.

Sources at the software company's annual Worldwide Partners Conference (WPC) in Houston last week agreed that as Microsoft bids to take on Google, it will now go for the search arm of Yahoo which it could land for a bargain price of between $9bn and $11bn.

Ballmer broke off from masterminding the new Yahoo campaign to tell 10,000 WPC partner companies, including a 30-strong contingent from Scotland: "Microsoft's 650,000-strong partner community expect this company to improve its offering in the global marketplace. We've had a good financial year, in some areas the best ever, but have no intentions of standing still.

"We intend to continue to combine our core software offering with many internet devices and push into new areas online. The business model will change, bringing into play advertising, subscriptions and other online transactions. This includes our aim to be the leader in the search business."

At the height of on/off talks over the past five months, Yahoo was valued at around $45bn with the search side of its business as much as $21bn. But Ballmer is now not thought to be interested in taking over what he views as unnecessary baggage, including a resistant Yahoo board and chief executive Jerry Yang.

Microsoft withdrew its offer to buy Yahoo outright on May 3 after Yahoo executives said they would be willing to sell for $37 a share. Microsoft had offered $33 a share, or about $47.5bn.

Two weeks later Microsoft said it was interested in buying Yahoo's search business, but reiterated that it was no longer interested in buying all of Yahoo.

Talks with Microsoft ended on June 12, and Yahoo signed an alternative online search advertising partnership with Google, a link-up that is subject to an antitrust review by the US Justice Department because Google and Yahoo control more than 80% of the US search advertising market.

Reports that the Microsoft/Yahoo deal is once again live, and that Ballmer and Icahn have met several times, was all the talk at the four-day WPC, especially when it was announced that Microsoft would be interested in restarting talks, but only if Yahoo's board was replaced.

Icahn will attempt to do just that at Yahoo's AGM on August 1 when he mounts a proxy fight against Yahoo's board, or pushes for extra seats on the board and the removal of Yang.

This could be enough to land the search business for Microsoft, a move that is helped by a significant tranche of Yahoo shareholders who are understood to be pleased the negotiations have restarted as a lucrative return on their investment could be imminent.

They have watched Yahoo's share price plummet in recent months, although it rose 12% last Monday to $23.91 following news of Microsoft's willingness to restart talks.

One insider at Houston said: "Earlier this year Microsoft acquired a key business, Fast Search & Transfer, a Norwegian enterprise search solutions business, for $1.2bn, and we could see a combining of the likes of Fast and Yahoo search capabilities to create a groundbreaking single vendor online global proposition."

Another source said: "Acquiring Yahoo's search arm would serve as a shortcut in Microsoft's bid to take on Google."

Google, the recognised internet search market leader, is not getting things all its own way. It has hit a snag in a plan to sell advertising on YouTube, which it bought for $1.7bn in 2006. The site is reported to be not as popular with corporate advertisers as Google had hoped.