For Yahoo!, Google's In, Microsoft's Out
Updated from 4:16 p.m. EDT
SAN FRANCISCO -- Shares of Yahoo! (YHOO) slumped following reports that talks with Microsoft (MSFT) concluded with no agreement, and Yahoo! will instead announce a search partnership with Google (GOOG).
Yahoo! later confirmed the breakdown with Microsoft, saying that the software giant was "unequivocally" not interested in pursuing an acquisition of all of Yahoo!, "even at the price range [$33 a share] it had previously suggested."
Yahoo! also said it had turned down a proposal by Microsoft to buy Yahoo!'s search business alone."Yahoo!'s Board of Directors 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," the company said in a release. Shares of Yahoo! closed down $2.63, or 10.1%, to $23.52. Microsoft subsequently confirmed its lack of interest in a full acquisition, but said its "alternative transaction" -- presumably a purchase of Yahoo!'s search business -- "remains available for discussion." The blog TechCrunch, citing a "reliable source close to one of the companies" said an announcement coming from Yahoo! at 4:30 p.m. EDT likely involves "a search partnership between the two companies that outsources all or part of Yahoo search marketing, and possibly search itself, to Google." The two companies announced a trial partnership in April that was deemed successful by the two companies, but also cited by Microsoft CEO Steve Ballmer as a reason that his company decided to not pursue a full-out acquisition of Yahoo! "We regard with particular concern your apparent planning to respond to a "hostile" bid by pursuing a new arrangement that would involve or lead to the outsourcing to Google of key paid Internet search terms offered by Yahoo! today. In our view, such an arrangement with the dominant search provider would make an acquisition of Yahoo! undesirable to us for a number of reasons ...," Ballmer wrote in an open letter to Yahoo! last month. However, the extent of the agreement that Google and Yahoo! make is crucial -- both in the eyes of federal regulators and Microsoft. A full outsourcing of Yahoo!'s search advertising operations that eliminated any business opportunity for Microsoft to be a business partner would likely draw heat from Congress.
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