When Will Microsoft Bust A(nother) Move?

Published on July 23, 2008
by Kara Swisher

Is Microsoft about to make another move on Yahoo? Or perhaps on AOL? Or is it just getting ready to articulate strategic plans for getting serious about the online search business on its own at its financial analysts’ tomorrow morning?

Or perhaps–and this might be the best strategy for the moment–the software giant is actually managing to stifle itself and wait to return to the playing field when things settle down a little bit.

One thing is clear: Microsoft (MSFT) has got to be plenty irked that its efforts have been vexed once again, this time by by the proxy fight settlement its one-time takeover quarry, Yahoo (YHOO), made earlier this week with activist investor Carl Icahn.

Icahn had been working in concert with Microsoft to pressure Yahoo into striking a deal to sell its its search business.

That attempt failed badly and, in fact, the repercussions of the failure sent Icahn right into Yahoo’s arms.

By no means does this mean that Microsoft’s persistent interest in grabbing Yahoo’s search assets has gone away–no matter all the noise, Microsoft would get a great boost from controlling the No. 2 player’s market share in search.

Even those inside Microsoft have long regarded Yahoo as an “accelerant” to its long-term strategy of building a large-scale business in online advertising.

But, as one source said, “it is now a game of timing and it’s probably better to be a tortoise than a hare here.”

While most do not expect Microsoft to make another bid for all of Yahoo, it is likely that the company will again try to rejigger its proposal for buying Yahoo’s search business after Yahoo seats its new board, which will include Icahn and two others of his choosing (with Yahoo’s consent).

Since Yahoo can no longer use Icahn as a reason for rebuffing Microsoft’s latest proposal to buy its search business, it will have to rely on its other major argument against such a purchase–that Microsoft is still not paying enough for an asset it must have.

A source close to Yahoo’s thinking said that even the generous $20 billion revenue guarantee in Microsoft’s latest bid was too low, because Microsoft is basing it on the assumption that Yahoo’s search business is declining.

And while Yahoo’s search business is not growing like gangbusters, especially compared with Google (GOOG), it is still growing, and Yahoo wants Microsoft to pay up on that basis.

In addition, Yahoo wants a premium for the regulatory and integration headaches such a deal would entail. “They have to better compensate us for buying something they want and we don’t have to sell,” said one Yahoo source.

To be fair, Yahoo cannot be quite that sanguine about its situation. To communicate “no confidence” in the company’s leadership, at least one major investor is considering withholding its vote for specific board members closest to the deal-making of late at Yahoo’s upcoming annual meeting on Aug. 1.

Likely targets are Yahoo CEO Jerry Yang, Chairman Roy Bostock and board member Ron Burkle.

And either today or tomorrow, the large proxy-advisory service, ISS Governance Services, which Yang and other Yahoo execs and board members visited last week to state their case, will make its recommendation to shareholders. Others, like Proxy Governance and Glass Lewis & Co., will also weigh in.

All are likely to ding Yahoo’s leadership in some way.

What all of this sets up is the next chapter of what Yahoo will need to do to push the reset button after the newly constituted board is officially formed and gets down to business.

If Yahoo does not get down to business quickly, the button will most definitely be reset for it by others.

Finally, for your viewing enjoyment, here is a video of Young MC performing “Bust A Move,” and just below it–in our single favorite tech video of all time–Microsoft CEO Steve Ballmer busting his own move:

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