Microsoft's renewed interest gives new life to activist investor Carl Icahn's effort to remove the current Yahoo board and oust CEO Jerry Yang.
In a letter to Yahoo stockholder's on Monday, Icahn disclosed recent conversations with Steven A. Ballmer, in which the Microsoft CEO indicated he would be open to talks with Yahoo should a new board be elected at the company's annual shareholder meeting on Aug. 1.
Confirming its support of Icahn, Microsoft said in a statement yesterday it would be interested in discussing either the purchase of Yahoo's search assets or the whole company, with a new board. Microsoft also said it wasn't prepared to publicly discuss the terms of any potential deal.
Not to be outdone, Yahoo fired back with its own statement Monday, expressing a willingness to resume talks with Microsoft and again raising questions about Icahn's long-term plans for Yahoo.
"If Microsoft and Mr. Ballmer really want to purchase Yahoo, we again invite them to make a proposal immediately," Yahoo wrote. " And if Mr. Icahn has an actual plan for Yahoo beyond hoping that Microsoft might actually consummate a deal which they have repeatedly walked away from, we would be very interested in hearing it."
Microsoft formally ended its bid for Yahoo on May 3 after declining to meet Yahoo's asking price of $37 a share. Microsoft had sweetened its buyout offer to $33 a share, or $47.5 billion, after initially bidding $31 a share on Feb. 1.
Further discussions between the companies about alternative deals, including Microsoft acquiring only Yahoo's search business, stalled last month. That cleared the way for Yahoo to announce an agreement June 12 to outsource some of its paid search advertising to Google.
In a research note issued Monday, Ben Schachter, an Internet analyst at UBS, said Microsoft latest statement combined with the recent slide in Yahoo's stock price and the continued weakness of its search and display business, make a deal more likely in the $31 to $33 a share range.
"Throughout this courtship, our view has been, and continues to be, that at some point Microsoft will acquire all of Yahoo as we still think Microsoft needs Yahoo to gain scale in the online business and to compete effectively against Google," he wrote.
Ross Sandler, an analyst at RBC Capital Markets, wasn't ready yet to predict where two companies' on-again, off-again negotiations will veer next. "I have no doubt that this could flip back and forth a few more times before anything definitive happens," he said.
Yahoo's second-quarter earnings report in two weeks will likely influence the outcome of the Icahn-led proxy fight as well as the possibility of future talks between Microsoft and Yahoo. Investors were buoyed Monday by the potential for a revived deal as shares climbed 12% to $23.91.
Meanwhile, any deal between Yahoo and Time Warner's AOL division would be unlikely to be struck before Yahoo's annual meeting on Aug. 1, a person familiar with the negotiations said on Monday, according to Reuters. Yahoo and AOL have been talking about merging their Internet operations for a few months, but the talks now factor in the expected boost to Yahoo's bottom line from its search advertising deal with Google Inc, the source told Reuters.
Yahoo had also talked with News Corp. about combining operations with the media company's MySpace and other Web assets. But those talks fell apart because News Corp. sought a value of as much as $15 billion for those assets, the person said. Talks between the two sides are no longer active, said the source, who was not authorized to speak on the record, according to Reuters.