Micro-Hoo Now Undead

Published: July 9, 2008

by Alex Woodie

The deal that was once all but dead is now showing signs of stirring back to life. According to a statement Monday from Microsoft, the company is willing to enter into negotiations to buy all or part of Yahoo, provided that activist investor Carl Icahn is successful in throwing out the existing Yahoo board and replacing it with his hand-picked slate in the board election next month.

The unlikely partnership between Icahn and Microsoft was sealed Monday when Microsoft published its statement regarding Yahoo's board. Icahn needed a public statement from Microsoft that it was still interested in pursuing part of Yahoo, or the whole company, to continue his quest to overthrow Yahoo's board of directors. Previously, Microsoft had said it was no longer interested in purchasing any part of Yahoo, but that was, like, a different week.

Icahn, who launched his Yahoo activities in May along with his purchase of 59 million shares of Yahoo, has not yet formally submitted his list of candidates to the Securities and Exchange Commission. He must do it soon to meet the deadline for the election, to be held at Yahoo's annual meeting on August 1. Nonetheless, he has been active in soliciting Yahoo shareholder support, including sending an open letter to shareholders.

In his most recent open letter, published Monday, Icahn laid out the latest development. "During the past week, I have spoken frequently with Steve Ballmer, CEO of Microsoft," he writes. "Steve made it abundantly clear that, due to his experiences with Yahoo during the past several months, he cannot negotiate any transaction with the current board. . . . [But] he stated that Microsoft would be willing to enter into discussion immediately, if the new board that has been nominated were elected."

Microsoft responded in kind with a statement Monday affirming Icahn's approach. "We have concluded that we cannot reach an agreement with them [Yahoo's board]. We confirm, however, that after the shareholder election, Microsoft would be interested in discussing with a new board a major transaction with Yahoo, such as either a transaction to purchase the 'search' function with large financial guarantees or, in the alternative, purchasing the whole company."

Predictably, Yahoo was not amused with the perceived meddling. The company struck with its own statement, delivered Monday. "Yahoo's board of directors continues to stand ready to enter into negotiations with Microsoft for an acquisition of Yahoo," the company says. "Indeed, as recently as June, Yahoo's independent directors and management approached Steve Ballmer about just such a transaction, only to be told that Microsoft was no longer interested, even in the price range which they had previously proposed.

"Now Mr. Ballmer and Mr. Icahn have teamed up in an apparent effort to force Yahoo into selling to Microsoft its search business at a price to be determined in a future 'negotiation' between Mr. Icahn's directors and Microsoft's management. We feel very strongly that this would not lead to an outcome that would be in the best interests of Yahoo's stockholders."

The on-again, off-again, on-again Micro-Hoo saga now has more twists and turns than a DNA strand. Presumably, the IT world will be treated to a no-holds-barred proxy fight in the weeks leading up to Yahoo's annual meeting. The deal may die several more deaths before anything is decided, only to be dug up again and resurrected, like remakes of zombie B movies. On the bright side, the legions of tech journalists will have a steady feast of intrigue and betrayal to keep them occupied and out of trouble during the dog days of summer. More brains!

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