Microsoft in fresh approach to Yahoo

Microsoft has made a fresh approach to Yahoo about a deal to combine part of their online businesses, although the proposal stops short of a full acquisition of the internet media company, Microsoft said yesterday.

The approach came in recent days after Carl Icahn, the activist investor, took a significant stake in Yahoo and put pressure on the company to reopen talks about selling itself to Microsoft, said a person close to the situation.

Microsoft's statement appeared to point to a potential acquisition of part of Yahoo's business rather than the entire company, although both companies declined to comment.

"Microsoft is considering and has raised with Yahoo an alternative that would involve a transaction with Yahoo, but not an acquisition of all of Yahoo," according to the statement.

"Microsoft is not proposing to make a new bid to acquire all of Yahoo at this time, but reserves the right to reconsider that alternative depending on future developments and discussions that may take place with Yahoo or discussions with shareholders of Yahoo or Microsoft or with other third parties."

News that contact between the two sides had resumed came two weeks after Microsoft abandoned its three-month pursuit of a full acquisition, and prompted immediate speculation that the software company believed it had a better chance of success if it did not try to buy the whole company.

Microsoft walked away after Yahoo rejected a sweetened offer valuing it at $33 a share, or $46.5bn (£23.8bn) and instead held out for $37 a share.

Shar Van Boskirk, an analyst at IDC, said the software group might be able to overcome the disagreement on price if it only tried to buy part of Yahoo. "Microsoft is most in-ter-ested in their search engine and search marketing business," she added.

Steve Ballmer, Microsoft's chief executive, highlighted Microsoft's interest in the Yahoo search business when he abandoned his pursuit of a full acquisition.

In a letter to Yahoo at the time, he said Microsoft had dropped its offer partly because of a potential search advertising alliance between Yahoo and Google, which had been under discussion for some weeks.

Microsoft's use of Mr Icahn's attack on Yahoo to try to reopen talks points to careful manoeuvring to try to secure a deal without turning hostile. Mr Ballmer had not held any talks with Mr Icahn, a person close to the situation said.

"They are putting the word out that they are still at the table, which further complicates Yahoo's strategy [in resisting Mr Icahn]," said Ned May, lead analyst with the Outsell research firm, referring to Yahoo's argument that Microsoft was no longer interested in negotiations.

The news could hit Yahoo's shares today. A takeover premium has crept back into Yahoo's stock in recent days following Mr Icahn's intervention.

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