Microsoft boosts Yahoo rebels with talk of deal

Jul 7, 2008, 15:23 GMT

San Francisco - Microsoft handed a huge boost to Yahoo's rebel shareholders Monday saying it was open to a 'major transaction' with the company if the board is replaced at next month's annual meeting.

In a statement Monday Microsoft said it would not hold any further talks with the current Yahoo board. 'We have concluded that we cannot reach an agreement with them,' the company said in its statement.

Talks between the two companies broke down in May after Yahoo rejected Microsoft's 47.5 billion dollar takeover bid as undervaluing the company. That led activist investor Carl Icahn to launch a proxy shareholder war to oust the board and company founder and CEO Jerry Yang, arguing that they deliberately failed to maximize shareholder value by sabotaging the talks with Microsoft.

Microsoft's bid had valued the company at 33 dollars per share, a premium of more than 60 per cent over Yahoo's pre-bid price. The share price has hovered around 20 dollars since the collapse of the deal but news of Microsoft's conditional new interest sent shares to 23 dollars in early trading Monday.

In its statement Microsoft also said that it had held talks with Icahn - whose insurgency will come to a head in a shareholder meeting on August 1, at which Icahn is attempting to get his own board slate elected.

In his own statement Monday, Icahn said Microsoft feels it cannot negotiate with the current board of Yahoo under fear that the board would 'mismanage' the company and hurt the value of the business.

He said while Microsoft perceives the risk to be 'quite high' with Yahoo's current board and management, Mr. Ballmer 'made it clear to me' that he would be interested in discussing a major deal with Yahoo if a new board were elected.

Icahn said that if his slate is elected the new board would in 'very short order' present to shareholders either a purchase offer for the whole company or a 'very attractive offer' to purchase the search assets with large guarantees. He also reiterated that a new board would also move 'expeditiously' to replace Yahoo CEO Jerry Yang.