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Icahn Sees Merit in Yahoo-Google Deal

Pia Sarkar

SAN FRANCISCO - Stopping short of offering his blessing, financier Carl Icahn said the deal negotiated between Yahoo!(YHOO) and Google(GOOG) last week may have some merit.

Icahn told Reuters in a phone interview Sunday that he is still "extremely disappointed with the Yahoo management" for not being able to negotiate a merger with Microsoft(MSFT) but that the Internet giant's decision to outsource some of its online ads in the U.S. and Canada to Google seems to be better than an alternative deal to sell Yahoo's search business to Microsoft.

Up until Sunday, Icahn had remained unusually quiet in the aftermath of the Yahoo!-Google deal. Previously, he had argued that Yahoo! should sell to Microsoft for $34.375 a share.

"While the Google deal is not the same as an offer of $34.375 per share for Yahoo, I am continuing to study it, and it might have some merit," Icahn said on Sunday.

As per the agreement, Google would be able to pull out of the deal with Yahoo! in the event that Yahoo! is acquired or if the majority of its board of directors is replaced. Icahn, who last month launched a proxy battle to oust the board, hinted that the "change in control" provision may be enough to convince him to back off.

The billionaire investor holds about 59 million shares, or more than 4 percent of Yahoo!.

Microsoft made a bid to acquire Yahoo! for $31 a share on Jan. 31. It later sweetened the offer to $33 but could not reach an agreement with Yahoo!, which had been gunning for $37 a share. Still, the two sides remained in talks to come up with an alternative deal that would not involve an outright takeover.

On Thursday, Yahoo! revealed that the talks had broken down and that it was not interested in selling its search business to Microsoft. Instead, it hammered out a revenue-sharing agreement with Google, in which Google would place ads alongside Yahoo's search results at Yahoo!'s discretion.

Google has a similar agreement with Ask.com, a division of IAC/InterActive Corp.(IACI) and Time Warner's(TWX)AOL.

Shares of Yahoo! were up less than 1%, or 2 cents, to $23.49 in recent trading. The stock had been plummeting since Thursday as many shareholders grew disenchanted when it became clear that a deal with Microsoft would not be reached.