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Investors for both sides want to see a merger before Google moves
Published on Tuesday, May 20, 2008
Associated Press
SAN FRANCISCO: Just two weeks after breaking off merger talks, Microsoft Corp. and Yahoo Inc. have been pulled back to the bargaining table by their fears about what might happen if they don't work out a deal.
Microsoft and Yahoo are still dancing around the edges as they explore possible business arrangements without melding the two companies.
The notion of a half-baked deal didn't excite investors Monday as they got their first chance to react to Sunday's news that the two are talking again.
Yahoo shares rose 0.7 percent, or 2 cents, to close at $27.68 on Monday, while Microsoft shares fell 1.8 percent, or 53 cents, to close at $29.46.
But most analysts remain convinced the preliminary talks will culminate in Microsoft buying Yahoo for somewhere between $33 to $37 per share, a price that translates to $47.5 billion to $53 billion.
Both Microsoft and Yahoo issued statements Sunday acknowledging they haven't ruled out the possibility of a merger even though they aren't discussing one now.
Although their discussions fell apart this month in a disagreement over price, both Yahoo and Microsoft have powerful incentives to reach a compromise within the next few weeks.
If Yahoo doesn't stop demanding $37 per share, its board could be overthrown in a shareholder mutiny led by activist investor Carl Icahn.
To pressure Yahoo into reviving the talks, he has nominated an alternate slate of 10 directors scheduled to stand for election at Yahoo's July 3 annual meeting. Icahn didn't respond to a request for comment Monday.
Meanwhile, Microsoft's unwillingness to pay more than $33 per share created an opportunity for its nemesis, Google Inc., to enter an advertising partnership with Yahoo.
''It's becoming pretty clear that Yahoo is either going to work something out with Microsoft or do a deal with Google,'' said Standard & Poor's equity analyst Scott Kessler. ''If Yahoo winds up with Google after all this, it would be pretty damaging to Microsoft.''
Microsoft began pursuing a Yahoo takeover in late January largely as a means to counter Google's dominance of the Internet search and advertising markets.
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