Yahoo ends talks with Microsoft, possibly nears Google deal

Yahoo has ended its talks with Microsoft about a deal narrower in scope than a full acquisition, Yahoo revealed on Thursday.

Instead, the company is nearing an agreement with Google involving its search advertising business, The Wall Street Journal reported. Yahoo made no mention of such a deal in a statement it issued late Thursday afternoon. Such deals are typically announced either before U.S. financial markets open in the morning or after they close at 4 p.m. Eastern time.

Yahoo said it has concluded talks with Microsoft because Microsoft was only interested in purchasing Yahoo's search business, not all of the company.

With respect to this, Yahoo's board decided "that such a transaction would not be consistent with the company's view of the converging search and display marketplaces, would leave the company without an independent search business that it views as critical to its strategic future and would not be in the best interests of Yahoo stockholders," the company said in a statement.

Microsoft on Thursday confirmed that it was not interested in rebidding for all of Yahoo, but had been seeking an "alternative transaction" that it believed would bring Yahoo shareholders more than US$33 per share, according to a statement. $33 per share had been Microsoft's previous final bid for all of Yahoo.

Microsoft said this alternative transaction remains on the table, and did not confirm that talks between it and Yahoo have concluded.

After Microsoft ended its acquisition bid for Yahoo on May 3, the companies acknowledged that they were in talks for an unspecified deal that most observers assumed involved Yahoo's search-advertising business.

Yahoo and Google had also been in talks about a search-advertising deal for several months, a deal that Microsoft cited as one of its primary reasons for ending its acquisition bid.

In April, Yahoo announced that it would test running Google ads along with its search results. Afterward, the companies said the test had gone well, but declined to provide more details on whether they would seek a longer-term, more formal, search ad deal.

Microsoft and Yahoo failed to come to terms on either a full or partial acquisition after months of on-again, off-again negotiations. Yahoo now faces the possibility of its board members being voted out by shareholders in a proxy battle spurred by billionaire investor Carl Icahn.

Icahn and Yahoo Chairman Roy Bostock have been trading barbs in public letters back and forth for the past week and a half as Icahn increased public criticism of how Yahoo has mishandled its dealings with Microsoft. On Friday he told Yahoo's board to offer itself up for sale to the software giant for $49.5 billion and be done with it. Icahn also said he would seek to replace Yahoo CEO Jerry Yang if his proxy bid is successful.

In response, Yahoo's board has defended its actions of the past several months. Through this public disagreement between Icahn and Yahoo, Microsoft has remained noticeably silent, so it was never clear if the company was still interested in purchasing Yahoo for that price or any other.

The IDG News Service is a Network World affiliate.