By Daisuke Wakabayashi and Dane Hamilton
Icahn launched a proxy campaign on Thursday to replace
Yahoo's board with directors who would reopen talks with
Microsoft, saying Yahoo had acted irrationally in refusing the
giant software company's $47.5 billion bid.
Microsoft walked away from its pursuit of Yahoo two weeks
ago after three months of negotiations when Yahoo's board
rejected Microsoft's sweetened offer of $33 a share, saying the
company was worth at least $37 a share.
The software giant's move on Sunday was likely to prompt
the billionaire investor to press Yahoo to further pursue a
possible alliance with Google, the source said.
"Microsoft is trying to get the milk without buying the
cow, and if you look at Icahn's history, he has never been used
that way," said this person. "He does not want to see Yahoo
pushed into some joint venture with Microsoft and is not going
to be used to push Yahoo into it."
Microsoft's statement on Sunday said it was "considering
and has raised with Yahoo an alternative that would involve a
transaction with Yahoo but not an acquisition of all of Yahoo."
It did not clarify what that alternative might be.
The New York Times reported that Microsoft and Yahoo may
form a partnership or joint venture for search-related
advertising to take on Google Inc, which dominates the search
market with a share significantly larger than a combined Yahoo
and Microsoft.
For its part, Yahoo continues to talk with Google Inc about
a search advertising partnership and a deal could come as early
as this week, a source familiar with the talks said on
Thursday.
Microsoft emphasized it was not proposing to make a new bid
to buy all of Yahoo, after recently being rebuffed, but could
reconsider.
Yahoo replied later on Sunday that it continued to consider
a number of strategic alternatives and was "open to pursuing
any transaction which is in the best interest of our
stockholders."
The company's board will "evaluate each of our
alternatives, including any Microsoft proposal, consistent with
its fiduciary duties, with a focus on maximizing stockholder
value," Yahoo said in a statement.
It added it had confirmed with Microsoft that it was not
interested in "pursuing an acquisition of all of Yahoo at this
time."
ANALYSTS SPLIT
Analysts were split on the benefits of an alternative
scenario to a full-fledged takeover.
"I definitely think an alternative deal is better than a
full acquisition," said Toan Tran, analyst at Morningstar. "It
is positive for both companies, because you are getting the
benefits of a Yahoo acquisition without the negatives, namely
the integration risks."
But Kim Caughey, a senior analyst at Fort Pitt Capital
Group, said the market will probably send Yahoo shares higher
while pushing down Microsoft shares when the market opens on
Monday.
Caughey said a joint venture or minority investment with
Yahoo could cause confusion about who was in charge.
(Additional reporting by Megan Davies in New York,
Anupreeta Das and by Sinead Carew; Editing by Gerald E.
McCormick and Anshuman Daga)
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