As the Bid Turns: Microsoft and Yahoo! – On Again, Off Again

Michelle Stone - June 26, 2008

After Microsoft’s bid for Yahoo! fell apart earlier this year, the proposed deal seemed dead and done — until, that is, billionaire Carl Icahn stepped in and Yahoo finalized a search advertising partnership with Google.

The saga of Microsoft and Yahoo! started in January of this year. That was when the software giant first launched a bid to buy the entirety of the search engine portal.

As we — and the rest of the webosphere — blogged about earlier, months of talks ensued with Yahoo constantly turning down offers in varying denominations. Ultimately, Microsoft offered to buy Yahoo, one of the Internet’s first portals, for $33 a share. This was a figure which valued the company at $47.5 billion all told and was, in turn, flatly refused by Yahoo.

Speculation ran rampant, especially with regard to the reasons for which the deal fell apart. One of the many reasons was that Yahoo co-founder and CEO Jerry Yang was looking for $37 a share. Allegedly, the price per share was too high for Microsoft CEO Steve Ballmer, who reportedly decided he did not want to buy Yahoo at that price.

The ensuing criticism, from the industry and shareholders alike, was led in no small part by billionaire investor Carl Icahn, who purchased millions of dollars worth of Yahoo shares. In fact, Mr. Icahn tried to oust Yahoo’s current board under the belief that it had made a mistake by not accepting the Microsoft offer.

Coming on the tails of this activity was recent news that Microsoft has said it is considering a deal with Yahoo which would not involve a full buyout of the company. There are no details as yet on this alternative transaction. The statement from Microsoft says that the company, “is not proposing to make a new bid to acquire all of Yahoo at this time, but reserves the right to reconsider that alternative”.

After Microsoft’s statement, Yahoo confirmed it was looking at a number of “value maximizing” alternatives with Microsoft, and would assess offers made by the firm.

A twist on the on-going saga is Yahoo’s partnership with Google to foster an alternative search advertising arrangement. Post-partnership, what is the latest to come from the on again, off again scenario? It’s news that Microsoft may be willing to sweeten its previous offer for a partial buyout of Yahoo’s search business.

In the meantime, following the end of discussions with Microsoft mere weeks ago, Yahoo’s board said in a statement that a sale leaving the company without an independent search business “would not be in the best interests of Yahoo stockholders.” However, it’s been reported that several of Yahoo’s nine board members, including its chairman, Roy Bostock, have suggested an interest in holding further discussions with Microsoft on a possible deal to sell the search operations.

Should Microsoft increase its buyout bid for just Yahoo’s search assets, at the end of the day, what would this mean for the Internet and search, especially in terms of SEO? We might have to wait for the dust to settle from this most recent cycle of will-they-won’t-they before we can figure that out.