Yahoo’s Yang: Still Talking with Microsoft, Company Reorganizing

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By Mike Caggeso
Associate Editor

In his most candid comments since thwarting a takeover attempt by Microsoft Corp. (MSFT), Yahoo! Inc. (YHOO) Chief Executive Officer Jerry Yang said that he believes the once-interested suitor no longer covets a full merger.

Speaking from the stage at the D: All Things Digital conference yesterday (Wednesday), Yang said that Yahoo did not walk away from Microsoft's $47.5 billion ($33 a share) offer, which Yang said would have created a powerful force.

But the saga between the two search-technology titans is far from over, Yang said at the conference today (Thursday).

According to a Bloomberg News report, Yang said that "they are discussing various other ideas and partnerships with us and we're listening. They clearly have some interest in Yahoo in some shape or form."

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An anonymous source said last week that the companies are discussing the possibility of Microsoft taking over Yahoo's search business and buying a minority stake in its rival, Reuters reported. Part of that deal would include Yahoo selling off some of its Asia assets, including minority stakes in Yahoo Japan and China's Alibaba.com Ltd.

A day before Yang spoke at the conference, Microsoft CEO Steve Ballmer spoke from the same stage, though he was less candid about the merger breakdown.

"It became clear there was a difference between the bid and ask," he said.

Rocky Relationship

The status of the search-technology titans' relationship has been at best rocky since Microsoft originally offered $44.6 billion (or $31 a share) for Yahoo in January.

Yahoo immediately rejected the terms, saying they undervalued the company. Microsoft then upped its offer to $47.5 billion (or $33 a share), which Yahoo again rejected, saying it wouldn't accept anything under $37 a share.

In early May, Microsoft yanked its bid for Yahoo after the two companies were unable to come to terms over the buyout price.

Analysts believed Microsoft's about-face was a ploy to lower Yahoo's stock value and stir mutiny among its shareholders.

Whether that was the intent, that certainly has become the case.

Since the merger's collapse, Yang's been under heavy pressure from many of his top shareholders. One of them, billionaire Carl Icahn, said Yahoo's board "completely botched" a successful merger with Microsoft and threatened to seek control of the board and resuscitate takeover talks, a move he said would be his way of acting on shareholders' interest.

"The board of directors of Yahoo has acted irrationally and lost the faith of shareholders and Microsoft," Icahn said in a letter to Yahoo Chairman Roy Bostock. "I sincerely hope you heed the wishes of your shareholders and move expeditiously to negotiate a merger with Microsoft, thereby making a proxy fight unnecessary."

If necessary, Icahn's strategy is to seek antitrust clearance from the Federal Trade Commission to purchase up to $2.5 billion worth of shares – about a 6% stake. Also, with all of Yahoo's 10 board members up for re-election on July 3, Icahn will move to nominate his own list of board candidates, including Mark Cuban and himself.

At the digital D conference, Yang stood by his decision and told the crowd that the company is reorganizing around four specialties – home page, search, mail and mobile services, the Associated Press reported.

"The essence of Yahoo is being defined today," Yang said. "We have to be incredibly relevant to the consumer. We want you to start your day at Yahoo."

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