Microsoft to Talk Business Only With New Yahoo Board

Microsoft Corp. announced yesterday that it would be interested in reopening talks to buy all or part of the internet company, Yahoo, if a new board is elected at the company's annual meeting on August 1.

Microsoft’s announcement has lent crucial support to billionaire investor Carl Icahn, a major Yahoo shareholder who is running a slate of nominees to replace Yahoo co-founder and Chief Executive Jerry Yang and the rest of the Yahoo board that failed to reach agreement on Microsoft's earlier takeover offer.

Icahn has been arguing that the expulsion of the current Yahoo board is the only way to salvage a deal with Microsoft. Icahn has promised to fire Yang as CEO and replace him with a more seasoned leader if he seizes control of the board.

Microsoft made it clear that it didn't believe it could negotiate a deal with Yahoo's current board when it said, "While of course there can be no assurance of a future transaction, we will be prepared to enter into discussions immediately after Yahoo's shareholder meeting if a new board is elected."

Investors reacted enthusiastically to the news with Yahoo shares rising by $2.54, or 11.9% to $23.89 in Monday afternoon's trading.

Meanwhile, Yahoo’s board has maintained that it was open to negotiating an offer from Microsoft but that Redmond Company's Chief Executive Steve Ballmer had told Yahoo that his company was no longer interested in buying the Internet giant at any price when Yahoo’s executives approached him about such a transaction last month.

"If Microsoft and Mr. Ballmer really want to purchase Yahoo, we again invite them to make a proposal immediately," Yahoo said.

Yahoo has also been urging its shareholders to re-elect its current board, arguing that Microsoft is more interested in buying Yahoo's online search engine than the entire business.

Yahoo said that Ballmer and Icahn's joint efforts to force Yahoo to sell its search business to Microsoft at a price to be determined by Icahn's directors and Microsoft management is not in the best interests of company's shareholders.

"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," Yahoo said.

The two-month old battle between Microsoft and Yahoo started when Microsoft offered to buy Yahoo for $47.5 billion, or $33 per share. Ballmer withdrew that bid after Yang sought $37 per share.

Yahoo's board tried to persuade Microsoft to renew the $33 per share offer last month but was rejected. Microsoft then tried to buy Yahoo's online search engine for $1 billion and invest another $8 billion for a 16% stake in Yahoo's remaining operations.

Instead, Yahoo opted for an online advertising partnership with rival Google Inc. that is supposed to increment its annual revenue by $800 million.

Where does this battle for control of Yahoo go from now is something to watch out for.