Microsoft proposes alternative Yahoo deal

Icahn, who has made a career out of agitating for change at some of the nation’s largest companies, bought a stake in Yahoo after the Microsoft takeover negotiations collapsed. He has named a slate of directors and threatened to unseat Yahoo’s management — or at least push Yahoo back into Microsoft’s arms. Microsoft has released a brief statement disclosing the renewed talks, a surprising reversal just weeks after it withdrew its $47.5 billion bid for Yahoo and said it had “moved on.”

In an e-mail message to Microsoft employees, a senior Microsoft executive seemed to acknowledge that moving on might be difficult. In his memo, Kevin Johnson, the executive in charge of Microsoft’s Internet business, emphasised the urgency felt at Microsoft about its failure to make more progress in catching up to Google.

“Regardless of the outcome of any new discussions,” he wrote, “it is important that we continue to move forward to strengthen our online services business. The fact is that we are not where we want to be in this business yet and we’ve been in this position longer than we’d all like.” Johnson then outlined Microsoft’s ambitious agenda in Internet search and online advertising, exploiting the company’s strengths in desktop software and newer fields like cellphone software. Among the goals enumerated in the memo are to “innovate and disrupt in search,” “win in display” ads online and “reinvent portal and social media experiences.”

In reply, Yahoo has said that it continues 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 maximising 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.”

Microsoft’s hastily revived effort to reach some kind of deal with Yahoo seems to suggest that the software giant has doubts about whether it can achieve those goals on its own. Indeed, Microsoft’s on-again, off-again interest in Yahoo has raised questions from analysts, investors, customers and employees about its strategy. Amid the discussions, Microsoft is scheduled to present its online strategy to advertisers at a gathering this week. People involved in the confidential discussions between Microsoft and Yahoo said the talks centered on a partnership or joint venture for search-related advertising to compete against Google.

It is unclear whether Microsoft would pursue a takeover bid again. In its statement Microsoft insisted it was not making such a bid, but hinted that it could be persuaded to reverse course. “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.