Microsoft Gathers Posse to Drive Yahoo Out of Town

The Microsoft-Yahoo saga continues and some old players have returned to the table. The Wall Street Journal recently reported that Microsoft held talks with both Time Warner Inc. and News Corp. about a possible alliance to pick apart Yahoo.

Under the proposed deal, Microsoft would take over Yahoo's search business and the remainder of the company could be merged with other content companies such as AOL or MySpace. (Source: wsj.com)

When the news broke on July 2, Yahoo's shares climbed the highest they had in recent months, closing the afternoon at $20.88 after surging as high as $21.84 earlier in the day. The announcement did little to change Microsoft's share price, but a Yahoo merger would triple the software giant's share of the online search market, edging it ever closer to online search leader Google. (Source: boston.com)

Currently, Yahoo is embroiled in a proxy battle with the activist shareholder, Carl Icahn. According to the Journal, Microsoft representatives met with Icahn to encourage the billionaire in his struggle for control of the company as a way to keep pressure on the besieged board of directors. The Journal also claims that Microsoft CEO Steven Ballmer called Yahoo Chairman Roy Bostock to ask for a meeting to discuss a new proposal; however, Ballmer quickly retracted his request and the meeting never took place. (Source: reuters.com)

Then just yesterday, Icahn, Microsoft and Yahoo released competing statements about the extent of current negotiations. Mr. Icahn made it clear that he felt Yahoo was moving "towards a precipice", and confirmed that he had met with Ballmer about a possible sale to Microsoft. In response to Icahn's letter, Microsoft reinforced its belief that a deal with Yahoo's current leadership is impossible. Meanwhile, Yahoo claimed once again that it is open to a deal with Microsoft, despite the fact that it has rebuffed several offers by Microsoft already.

While it is uncertain why Microsoft chose to re-emerge with its Yahoo bid at this point, critics were surprised that the Redmond-based company was willing to walk away from such an important deal earlier this year. This is also not the first time News Corp. has played a role in this story; in April, John Lister reported that News Corp. was willing to join Microsoft in a deal to acquire Yahoo. (Source: infopackets.com)

Internet search leader Google has also been pulled into the saga. Yahoo is currently in a partnership with the search giant to place AdSense ads on Yahoo's own search pages.

Most experts agree that a deal between Microsoft and Yahoo would be beneficial for both sides. Furthermore, a rivalry between Microsoft and Google, while unlikely to upset Google's top position, would bring greater competition to online search advertising.