Microsoft proposes alternative Yahoo deal

Two weeks after abandoning takeover talks with web services giant Yahoo, Microsoft is returning to the bargaining table, this time proposing the firms collaborate on web advertising ... but hinting a full-fledged acquisition may still be in the cards. Microsoft Sunday said it is "continuing to explore and pursue its alternatives to improve and expand its online services and advertising business … Microsoft is not proposing to make a new bid to acquire all of Yahoo at this time, but reserves the right to reconsider that alternative depending on future developments and discussions that may take place with Yahoo or discussions with shareholders of Yahoo or Microsoft or with other third parties."

The renewed talks underline the cloudy future facing both companies. Amid rumors rival Google is poised to ink its own deal with Yahoo, Microsoft is faced with the possibility of falling even further behind in the race to dominate digital search and advertising. In an email to employees Sunday afternoon, Microsoft president of platforms and services Kevin Johnson writes, "Regardless of the outcome of any new discussions, it is important that we continue to move forward to strengthen our online services business. The fact is that we are not where we want to be in this business yet and we've been in this position longer than we'd all like." Outlining an agenda designed to exploit Microsoft's strengths on the desktop and in mobile, Johnson says the firm must "innovate and disrupt in search," "win in display" ads and "reinvent portal and social media experiences."

At the same time, Yahoo is under attack from activist investor Carl Icahn, who is threatening a proxy battle for the firm if a deal with Microsoft is not signed. In a letter to Yahoo chairman Roy Bostock dated May 15, Icahn claims that Yahoo's board "acted irrationally and lost the faith of shareholders" by turning down Microsoft's $33 per share takeover offer. "It is unconscionable that you have not allowed your shareholders to choose to accept an offer that represented a 72 percent premium over Yahoo's closing price of $19.18 on the day before the initial Microsoft offer," Icahn continues. "I and many of your shareholders strongly believe that a combination between Yahoo and Microsoft would form a dynamic company and more importantly would be a force strong enough to compete with Google on the Internet."

For more on the Microsoft/Yahoo talks:
- read this New York Times article

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