Microsoft, Yahoo may team up on Web search

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NEW YORK - Microsoft Corp., the software maker that scrapped a $47.5 billion bid for Yahoo! Inc. this month, may forge a partnership with the Internet company in the search-advertising market to challenge Google Inc. Microsoft, which abandoned its takeover attempts May 3, said Sunday that it’s exploring a transaction with Yahoo and may renew attempts to buy the entire company. The two may combine units that sell ads that run next to Internet search results, said Morningstar Inc. analyst Toan Tran. Billionaire investor Carl Icahn is pressuring Yahoo to ally itself with Microsoft to compete with Google, which dominates the Internet search market. Icahn, backed by investors such as hedge-fund manager John Paulson, plans to oust Yahoo’s board if Chief Executive Officer Jerry Yang fails to sell to Microsoft. ‘Carl Icahn is in this to make a quick buck, so whatever helps him make money he’ll be happy with,’ said Tran, who is based in Chicago and doesn’t own shares of either company. ‘What Carl Icahn definitely wants is an outright sale of Yahoo to Microsoft at some price higher than what it is now.’ Microsoft has offered to buy Yahoo’s search unit and take a minority stake in the company after Yahoo gets rid of its holdings in Asia, Reuters reported Monday, citing a person familiar with the talks. Microsoft spokesman Frank Shaw declined to confirm or deny the report, while Yahoo spokeswoman Diana Wong declined to comment. Microsoft, based in Redmond, Washington, fell 53 cents to close at $29.46 in Nasdaq Stock Market trading. Sunnyvale, California-based Yahoo rose 2 cents to $27.68, while Google dropped $2.55 to $577.52. The new talks may bring Microsoft closer to a full acquisition of Yahoo, said Mark May, an analyst at Needham & Co. in New York. On Monday, he changed his recommendation on Yahoo’s stock to buy. He had advised clients to hold on to the shares since April 2007. ‘Microsoft sees an opportunity where their negotiating position has improved,’ May said. ‘They clearly have some very large shareholders on their side now and they realize that they can make some moves.’ Icahn, 72, owns 10 million shares and options to purchase 49 million more. He proposed a slate of board nominees last week including Dallas Mavericks owner Mark Cuban and former Viacom Inc. CEO Frank Biondi Jr. Icahn didn’t return phone messages. Paulson said last week that he would back Icahn’s slate and that he was disappointed Yahoo didn’t reach a deal with Microsoft. Paulson & Co. owned 50 million shares of Yahoo as of March. All 10 of Yahoo’s directors are up for re-election at the annual meeting July 3. Yahoo and Microsoft trail Mountain View, Calif.-based Google in Internet search traffic. Together they account for about a third of total Internet searches in the U.S., or about half of the share Google has, according to research firm ComScore Inc. Google CEO Eric Schmidt and co-founders Larry Page and Sergey Brin are meeting in Britain to discuss Google’s response to the Microsoft talks with Yahoo, according to a British Broadcasting Corp. report. They were traveling to attend an event for the company’s European operations, the BBC said. Google didn’t respond to an e-mail. With reporting by Crayton Harrison in Dallas.