Deal between Yahoo and Microsoft to be revived again

Microsoft Corp., the world’s biggest software maker, revived the possibility of a deal with Yahoo! Inc. to challenge Google Inc. after failing to agree on a merger.

Microsoft said yesterday it’s exploring an agreement with Yahoo that stops short of a full takeover. Redmond, Washington- based Microsoft didn’t elaborate on the proposal and said it “reserves the right” to reconsider its bid to buy all of Yahoo.

The proposal gives Yahoo, owner of the second-most popular Web search engine, another chance to forge an agreement with Microsoft as investor Carl Icahn threatens to oust the Internet company’s board. Yahoo Chief Executive Officer Jerry Yang demanded a higher price than Microsoft’s $47.5 billion offer, prompting Microsoft CEO Steve Ballmer to abandon talks on May 3.

“Many analysts expected Microsoft to retrace its steps and seek a deal with Yahoo,” said Raffaella Sommariva, a fund manager at AZ Fund Management SA in Luxembourg, which oversees the equivalent of $14.5 billion. “An accord would be a great opportunity for both of them.”

Yahoo said in a statement yesterday that it is open to pursuing any transaction in the best interest of investors. The company said it will continue to consider all of its options, including any proposal from Microsoft.

Microsoft and Yahoo had discussed a partnership designed to boost each other’s share of the Web search and advertising market, people briefed on the discussions said last May.Separately, Microsoft said yesterday it will talk about a “major new initiative” in its search engine technology on May 21.

Microsoft will also make changes to its online branding, which is “fragmented and confusing,” Kevin Johnson, president of Microsoft’s Internet business, said in a memo to employees. The company will “double down” on investments in Europe, pursue small acquisitions and expand partnerships to build up the online business, he said.

Icahn disclosed that he owned 10 million Yahoo shares and options to buy 49 million more. He submitted his own slate of nominees for Yahoo’s board, including himself, Dallas Mavericks owner Mark Cuban and former Viacom Inc. CEO Frank Biondi. All 10 of Yahoo’s current directors are up for re-election at the annual meeting on July 3.

The 72-year-old investor, who helped orchestrate Oracle Corp.’s takeover of BEA Systems Inc., said in a letter to Yahoo’s board that directors had “botched” talks with Microsoft. Yahoo disputed the claim, saying Icahn had a “significant misunderstanding” of the discussions.

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