Microsoft Corp. said it may revive takeover talks with Yahoo! Inc., the second most popular U.S. search engine, if investors back Carl Icahn's attempt to oust the board and Chief Executive Officer Jerry Yang.
Yahoo shares rose the most since Feb. 1, when Microsoft disclosed its initial offer. The software maker said it might try to buy the search business or the whole company. Microsoft has been in talks in the past week with Icahn, the billionaire who controls about 69 million Yahoo shares.
Icahn is building momentum ahead of a Yahoo shareholder vote on his board slate next month. Icahn, who said the companies need to combine to compete with Google Inc., has already won backing from holders of including T. Boone Pickens, chairman of BP Capital LLC, and hedge-fund manager John Paulson.
``There's a lot more credibility behind Carl Icahn's slate,'' Canaccord Adams Inc.'s Colin Gillis said in an interview. The New York-based analyst advises investors to hang on to Yahoo stock.
Yahoo advanced $2.25, or 10 percent, to $23.60 at 12:31 p.m. New York time in Nasdaq Stock Market trading. Earlier the stock rose as much as 13 percent. Microsoft, the world's biggest software maker, fell 25 cents to $25.73.
There can be no assurance of a transaction, Microsoft said in an e-mailed statement today. Yahoo responded by inviting Microsoft to make another proposal immediately, saying the software maker is the one that has repeatedly walked away from talks.
Precipice
Yahoo ``is now moving toward a precipice,'' Icahn, 72, said in a separate statement today. ``It is time for a change.'' He said his talks with Ballmer had lasted as long as an hour and that some included executives such as Kevin Johnson, the president of the platform and services unit.
Microsoft originally offered about $44.6 billion for Yahoo, or $31 a share. That's 62 percent more than the Internet company's stock price before the bid. Yang rejected the offer, saying the company he founded more than a decade ago is worth more because of its growth prospects and Asian operations.
Lawyers from Sullivan & Cromwell LLP and Cadwalader Wickersham & Taft LLP, and bankers from Morgan Stanley and Blackstone Group LP advised Microsoft. Yahoo received counsel from law firm Skadden, Arps, Slate, Meagher & Flom LLP, and from Goldman Sachs Group Inc., Lehman Brothers Holdings Inc. and Moelis & Co.
Ballmer raised the bid as high as $33 a share to sway the board, and walked away on May 3 after Yang, 39, asked for $37. That prompted Icahn to enter the fray, buying Yahoo stock and calling for the Internet company to reopen negotiations.
Lower Bid?
Less than a month later, the software maker began talks on an alternative transaction, including a possible acquisition of Yahoo's search business. Taking over Yahoo's search unit would help Microsoft triple its share of U.S. Internet queries, narrowing the gap with market leader Google.
Those discussions collapsed last month, when Yahoo announced a search partnership with Google. Microsoft had offered to buy $8 billion in Yahoo shares for $35 each and the search business for another $1 billion. The two companies also would have also struck a long-term search engine partnership guaranteeing Yahoo higher revenue for three years than what it gets from its own ad system, Johnson said in an e-mail at the time.
With Icahn's slate in place, Microsoft may be able to win Yahoo with a bid lower than its initial $31-a-share offer, Canaccord's Gillis said. Yahoo will report second-quarter results this month.
Yahoo handled about 20.6 percent of U.S. Internet searches in May, more than twice as many as Microsoft. Mountain View, California-based Google dominated, accounting for almost two- thirds, according to researcher ComScore Inc.
Yahoo's Declines
Before today, Yahoo's stock had dropped 18 percent since June 11, the day before Microsoft said it would end attempts at a transaction. Icahn and his backers hold at least 10 percent of Yahoo's shares, according to data compiled by Bloomberg. Yang and co-founded David Filo together own about 9.5 percent, Bloomberg data show.
Icahn nominated nine directors to replace Yahoo's board members, including himself, Dallas Mavericks basketball team owner Mark Cuban and former Viacom Inc. CEO Frank Biondi Jr. Yahoo's shareholder meeting is scheduled for Aug. 1.
Microsoft's backing ``really strengthens Icahn's position,'' said Stanford Group Co.'s Clay Moran. ``A deal is very much back on the table.'' The Boca Raton, Florida-based analyst advises investors to hold on to Yahoo shares and doesn't own any.
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