Microsoft, Yahoo Discuss New Deal
Talks Fall Short of Full Acquisition but Leave Door Open

By Peter Whoriskey
Washington Post Staff Writer
Monday, May 19, 2008

Microsoft is once again in negotiations with Yahoo and could make another bid to acquire the company, Microsoft officials announced yesterday.

For now, however, Microsoft is in discussions with Yahoo regarding a limited "transaction" but not a deal in which Microsoft would buy all of Yahoo, the company said in a statement.

"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.

Exactly what the proposed transaction might be was not disclosed, but the statement indicated that Microsoft was exploring ways of expanding its online and advertising businesses. The sides have discussed a deal involving search advertising, according to a person familiar with the talks who spoke on condition of anonymity.

Also, in an about-face, the statement left open the possibility that Microsoft could resurrect its attempt to buy Yahoo, "depending on future developments" and "discussions" that may take place among Microsoft, Yahoo, and Yahoo shareholders.

The statement was the latest development in a long-running saga involving Microsoft, Yahoo and Google.

All three are engaged in a contest for the domination of Internet services, particularly advertising. Google is the front-runner. Microsoft, the giant of personal computing, has struggled to find its footing on the Internet. Yahoo, with 137 million monthly online users, has been caught in the middle.

Until May 3, Microsoft had been seeking to acquire Yahoo to gain online stature. Google opposed the acquisition bid and offered to help Yahoo withstand Microsoft's takeover attempt. Eventually frustrated, Microsoft chief executive Steven Ballmer withdrew the offer.

Since then, however, Yahoo has come under intense pressure from shareholders who argue that its board should have accepted Microsoft's offer of $33 a share.

Last week, billionaire investor Carl C. Icahn, who has amassed a significant stake in Yahoo, nominated a replacement slate of directors who presumably would agree to the sale.

The question looming over Icahn's attempt to take over and sell Yahoo is whether Microsoft might be persuaded to make another bid.

Throughout last week, when asked whether the company might do so, Microsoft spokesmen would offer only, "We're moving on."

Microsoft's statement yesterday, however, suggests that it would be open to making another offer. A person familiar with Microsoft's position said the company had not been in talks with Icahn, however.

"Microsoft has not spoken with Carl Icahn," the person said.

In a statement yesterday, Yahoo said its board would evaluate each of its alternatives, "including any Microsoft proposal" and focus on maximizing shareholder value.

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