Yahoo Investor Supports Microsoft Deal

If Microsoft and Yahoo are indeed negotiating over a search or advertising partnership, then they have an advocate in the form of prominent investor Carl Icahn.

“I’ve been a strong advocate of getting a search deal done with Microsoft,” Icahn told Reuters in an interview on 17 July. “It would enhance value if a deal got done, because of the synergies involved.”

Icahn, who owns around 5 percent of Yahoo, previously tried to arrange a partnership deal between Microsoft and Yahoo in 2008, but those talks fell apart.

Rumors had started swirling last week that Microsoft and Yahoo had returned to the bargaining table for a possible search and online advertising partnership, with Microsoft possibly paying Yahoo several billion dollars in exchange for its search advertising business and certain revenue guarantees.

The rumored talks came as a surprise to many. Microsoft had been pushing its new search engine, Bing, with a massive ad campaign estimated at costing between $80 million and $100 million ($61m). Although Bing only had an 8.4 percent market-share in the U.S. search market in June 2009 – placing it third behind Yahoo with 19.6 percent of the market, and Google with 65 percent – Microsoft CEO Steve Ballmer seemed enthused in a July 14 speech at Bing’s search and revenue prospects.

“Man, oh man, have we taken a lot of abuse, and we’re still just an itsy-bitsy part of the market, but we have a little bit of mojo,” Ballmer told the audience at Microsoft’s Worldwide Partner Conference in New Orleans. Bing, he added, is “as good a view of our tenacity and commitment as anything you’ve ever seen.”

Despite Microsoft’s focus on Bing, a deal with Yahoo could make a lot of sense for Redmond, particularly as it seeks to compete against Google, which thus far has led the space by double-digit margins.

“Consolidation is natural when the dominant firm has so high a share,” Roger Kay, an analyst with Endpoint Technologies Associates, said in an interview with eWeek. “A consolidated competitor gives advertisers and publishers a viable alternative to the dominant firm. They tend to like that.”

Despite the tortured ending to 2008’s takeover attempt by Microsoft, Ballmer had apparently been in talks with new Yahoo CEO Carol Bartz over a deal. For her part, Bartz also seemed open to negotiation.

Bartz suggested, at May’s seventh annual D: All Things Digital conference in Carlsbad, Calif., that she would enter into a deal with Microsoft for Yahoo’s search apparatus in exchange for “boatloads of money.”

One month later, Bartz said during Bank of America and Merrill Lynch U.S. Technology Conference in New York that a deal between Microsoft and Yahoo would save her company between $500 million and $700 million (£426m), with most of that cash accrued through staff reductions and data centre cutbacks.

Although Bartz and Ballmer had reportedly been discussing a number of issues, neither side has publicly commented on talks.