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Yahoo Ends Talks With MSFT, Turns to Google

Raymond McConville
News Analysis
Raymond McConville
6/12/2008
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Shares of Yahoo Inc. (Nasdaq: YHOO) tumbled over 10 percent today on news that it had broken off merger talks with Microsoft Corp. (Nasdaq: MSFT) once and for all. (See Yahoo, Microsoft End Talks.)

Yahoo said that talks concerning all potential transactions between the two companies, whether it be a full or partial acquisition or a partnership, have concluded. After Yahoo had recently rejected Microsoft’s offer to fully acquire the company, Microsoft had proposed a transaction where it would acquire only Yahoo’s search business. (See Microsoft Makes $44.6B Hostile Bid for Yahoo and Microsoft Drops Yahoo Offer.)

“Yahoo’s board has determined, after careful evaluation, that such a transaction would not be consistent with the company’s view of the converging search and display marketplaces, would leave the company without an independent search business that it views as critical to its strategic future and would not be in the best interests of Yahoo! Stockholders,” said Yahoo in a canned statement.

Microsoft, in a statement of its own, held that its "alternative transaction," in excess of $33 per share, "remains available for discussion."

With Microsoft out of the picture, Yahoo is apparently, once again, turning to Google (Nasdaq: GOOG), according to the Wall Street Journal. The deal reportedly would involve Yahoo outsourcing all or part of its search marketing business to Google. An announcement was supposedly expected at 4:30 p.m. ET today.

Recall that Yahoo and Google had announced in April that they would undertake a two-week test in which Yahoo would carry search ads from Google in its own search results. (See Yahoo to Test Google AdSense.) It is unclear whether this new, purported deal between the two would entail a deepened version of that trial run.

As of press time Thursday, however, no official announcement between Google and Yahoo had been made.

— Raymond McConville, Reporter, Light Reading

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