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Yahoo seeks Google's aid after Microsoft talks die
(Agencies)
Updated: 2008-06-13 14:38

Many Yahoo shareholders blame Yang for letting his emotional attachment blur his judgment during the Microsoft negotiations.

Yahoo's board sent Yang and fellow co-founder David Filo to a pivotal May 3 meeting in Seattle to discuss Microsoft's oral offer to buy the company for $33 per share, up from its initial bid of $31 per share. After Yang demanded $37 per share, Microsoft CEO Steve Ballmer withdrew the offer.

In recent weeks, Ballmer has been trying to buy Yahoo's search engine instead.

Yahoo concluded that its search engine was too important to sell piecemeal.

Without explaining its logic, Microsoft said it believed a deal involving Yahoo's search engine would have been more valuable to Yahoo than if it had bought the entire company at $33 per share. The Redmond, Wash.-based software maker said it remains open to buying Yahoo's search operations.

Yahoo's deal with Google includes an escape hatch should Microsoft or another suitor buy the company. If Yahoo is sold, Google would receive a termination fee of up to $250 million.

That clause could still raise hope that Icahn might be able to renew the Microsoft talks if he can win control of Yahoo's board.

The deal shapes up as a major victory for Mountain View-based Google, which didn't want Yahoo to fall into Microsoft's clutches.

"I am happy to be helping them to stay independent," Google co-founder Sergey Brin said in a Thursday interview.

With a Yahoo deal off the table, Microsoft could set its sights on a smaller acquisition that still might help its unprofitable Internet operations. Analysts have cited Time Warner Inc.'s AOL, Internet software service provider Salesforce.com Inc. and leading online social networks, News Corp.'s MySpace and Facebook Inc. as possible targets.

The Google partnership expands upon a two-week trial conducted in April while Yahoo was trying to pressure Microsoft into raising its bid. The tests confirmed Google's technology would generate more revenue for Yahoo than its own system, which cost more than $2 billion to acquire and improve.

Nevertheless, Yahoo still intends to use its own search engine to distribute some ads and process all search requests. Working with Google will give Yahoo "the best of both worlds," Yahoo President Sue Decker said a Thursday conference call.

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